Markets see Reeves’ statement as ‘Spring sideshow’ – Daily Business

+ Chancellor sticks to plan + Agrees to meet oil execs over levy + Markets fall

Market analysts largely discounted today’s Spring Statement, saying it had been overtaken by events in the Middle East which were dictating bond yields and energy prices and the direction of inflation.

Chancellor Rachel Reeves was also forced to admit that the Office for Budget Responsibility had downgraded Britain’s economic growth forecast and predicted a rise in unemployment.

Ms Reeves insisted her plan was on track and that the OBR report shows that “our plan is the right one”, with inflation and interest rates falling. She said “stability is the single most important precondition” for economic growth.

However, Chris Beauchamp, chief market analyst at IG, said: “You have to wonder whether the chancellor has checked a data terminal recently.

“Today’s note that inflation is falling faster than expected is, like all plans, unlikely to survive first contact with the enemy.

“UK gas prices are rising at their fastest pace in recent history, and much faster than in 2022. The government might be optimistic, but consumers are already beginning to fret.”

Grant Slade, economist at Morningstar, said: “The gilt market largely shrugged off the OBR’s improved fiscal outlook, with today’s spike gilt yields reflecting the surging energy prices amid the ongoing Middle East conflict.”

James Bentley, director at Financial Markets Online, said: “Rachel Reeves had promised a low-key Spring Statement. What we got was a Spring sideshow, with no policy announcements and a Chancellor relegated to the role of bystander by the market chaos.

“Her speech has been completely overtaken by events. A week ago the markets would have welcomed the news that government borrowing is coming down nicely, and the OBR’s forecast that unemployment will start to ease from its current five-year high.

“But with the UK stock markets a sea of red, encouraging economic forecasts and a Chancellor in self-congratulatory mood count for little. The Pound picked up against the Euro, but both the FTSE 100 and FTSE 250 barely moved following her speech.

“Two big questions remain – how far will equities fall, and will the surge in oil and gas prices nix any chance of interest rate cuts in the coming months?

“The good news is that the market impact of geopolitical shocks tends to be shorter-lived than that of economic downturns, and we are already seeing investors ‘buying the dip’.”

The speech, as promised, was short with the Chancellor making no new announcements on tax and spending and saying nothing on the energy profits levy, despite hints that she may announce an early cut.

However, she has agreed to meet North Sea oil and gas industry leaders tomorrow. Aberdeen-based Alan Stewart, partner at accountancy firm MHA, said this “underlines how closely energy security and fiscal policy are now intertwined.

“Heightened tension in the Middle East inevitably sharpens focus on the resilience of domestic supply and the role of the UK Continental Shelf within that framework.

“It also reopens questions around the energy profits levy and the longer-term competitiveness of the UK fiscal regime.”

Ms Reeves devoted most her statement to criticising the previous Conservative government’s record. Critics will say this was in order to avoid the effects of higher energy and employment on businesses.

The OBR is now forecasting growth of just 1.1% for 2026 from its previous prediction of 1.4%, and said unemployment will peak at 5.3% this year. It expects growth to pick up in the following years: to 1.6% in 2027 and 2028, and then 1.5% in both 2029 and 2030.

Defending her record, Ms Reeves said: “Inflation is down, borrowing is down, living standards are up.”

She said the previous government let inflation and interest rates rise in “the first Parliament on record where people were poorer at the end than they were at the start”.

At the next election, people will ask whether their family is better off, Ms Reeves said. “I am determined that the answer will be yes.”

Mel Stride, the Shadow Chancellor, responded by accusing the Chancellor of being in denial. It was “not a Spring Statement” but a “surrender statement”, he said.

“She speaks of stability. What planet is the lady on?

“She has the temerity to suggest she is creating the conditions for renewed growth”.

He said Ms Reeves knows government borrowing is nearly double what was forecast at the time of the general election.

In a statement, Scottish Conservative shadow finance secretary Craig Hoy said: “It defies belief that Rachel Reeves once again refused to ditch the windfall tax, when 1,000 oil and gas jobs are being lost every month.

“The energy profits levy, coupled with the opposition of Labour and the SNP to new North Sea developments, is devastating the Scottish economy and communities across the North East, as well as threatening our energy security.

Small business dismay

Responding to the statement, Scotland chair of the Federation of Small Businesses (FSB), Guy Hinks, said: “No one running a small business will be surprised by the downgrading of the growth forecast for this year.

“Small firms across the country are shelving plans to hire staff or otherwise invest in their businesses in the face of constantly rising costs. 

“One in three Scottish small businesses tell us they expect to shrink or close in the coming year. That is before many are hit with higher business rates and increased costs for employing staff next month as a result of public policy changes. 

“The small businesses which are the backbone of the Scottish economy need to see measures to ease these enormous cost pressures in order to support jobs and growth. 

“Given the global events of recent days, if there is another energy price crisis, the UK Government must stand ready to support small business energy consumers with similar measures to those introduced in the last price spike.