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UK Spring Statement 2025: what should markets expect?

With a raft of big policy shifts already announced, what should markets expect from next week’s Spring Statement?

20 Mar 2025 . 3 min read

Our experts share their views on what to expect, with a focus on the health of the economy, public finances, potential fiscal policies, the impact on interest rates, and what it all means for corporate finance decision-makers and investment professionals.

The economic outlook and the health of public finances

This UK is in a precarious fiscal position, requiring the government to identify spending cuts to meet fiscal rules. And to make matters worse, the UK economy is currently under significant pressure.

The Office for Budget Responsibility (OBR) is more optimistic about 2025 with a forecast of 2.0% real GDP growth, but we believe this is likely to be revised down to 1.5%.

This downward revision will inevitably affect borrowing projections, resulting in an increase to the Central Government Net Cash Requirement (CGNCR).

Medium-term growth (GDP) and fiscal borrowing projections (CGNCR)

Sources: NatWest, Office for Budget Responsibility, Office for National Statistics

The CGNCR (which informs gilt issuance) for the 2024-25 fiscal year is expected to reach £173bn, which is an £8bn overshoot from the OBR’s forecast of £165bn made in October 2024. For the 2025-26 fiscal year, we anticipate the CGNCR will be revised up to £142bn from £135bn. Nominal GDP – which is crucial for public finance projections – grew 4.8% in 2024 (the OBR expected 4.0%).

However, this positive development comes with weaker-than-expected growth in tax receipts, and higher than expected debt servicing costs. Looking ahead, the OBR’s forecast for nominal GDP growth of 4.6% in 2025 is likely to be trimmed to 4.3%.

Government spending restraint rather than immediate tax hikes?

The Spring Statement is likely to reveal adjustments to public spending totals, primarily through a ‘spreadsheet’ exercise rather than real cuts this year.

Medium-term borrowing projections will remain elevated, resembling those seen in the October Budget. The fiscal rules for the 2029-30 fiscal year will probably be met, though probably not with greater headroom than was announced in the autumn.

Tax rises could be on the horizon, potentially being unveiled as soon as the full autumn 2025 Budget. These increases appear necessary to maintain fiscal headroom amid rising gilt yields and subdued economic growth.

The government's priority appears to be spending restraint rather than immediate tax hikes. Additionally, some backloaded spending cuts might be identified to preserve headroom, although these cuts may not be implemented immediately.

Furthermore, the government has expressed an ambition to raise defence spending to 3.0% of GDP in the next parliament, subject to economic and fiscal conditions. While this goal may require further policy action including tax rises, it has made no firm commitments.

What could this mean for rates?

Gilt yields are expected to rise in response to the modest upward revisions in borrowing numbers.

We project 10-year gilt yields to reach a range of 4.75%-5%. Whilst that is not significantly higher than current levels, any increase in gilt yields would raise debt servicing costs, further erasing some of the government’s fiscal headroom.

Where are key rates heading?

Sources: NatWest, Bloomberg

What might all of this mean for markets?

Given the projections for modest spending cuts and rising borrowing costs, corporate finance decision-makers should prepare for an environment of higher interest rates for an extended period of time. Portfolio investors should anticipate a knee-jerk curve steepening upon announcement but consider this as a temporary reaction, focusing on long-term yield trends.

Monitoring the Debt Management Office’s (DMO’s) issuance strategies and adapting to the changes in gilt demand and supply will be vital, as will adapting to any changes in tax policy.

Go deeper with Market Insights

The upcoming UK Spring Statement is set to underline the fiscal challenges facing the government. With borrowing projections rising and anticipations of modest spending cuts, markets will focus on how the feasibility of the fiscal headroom and price stability. Corporates and investors must stay informed amid these developments, ensuring their strategies are agile in response.

To get access to more detailed research and analysis on the biggest events moving markets, log in to Market Insights. Don’t have access? Reach out to your usual NatWest contact or get in touch here.

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