OBR Halves Growth Forecast, Warning of Trump Tariffs and Volatile Borrowing Costs

Rachel Reeves must cope with lower growth and higher borrowing costs this year, as the Treasury's independent forecaster said the global economic situation was more unpredictable and could worsen if Donald Trump imposed significant trade tariffs.

- Phillip Inman

In a report to coincide with the chancellor's spring statement, the Office for Budget Responsibility (OBR) said the economic outlook was "more challenging" and "more uncertain" as it forecast that growth would halve this year to 1% from its 2% prediction after October's budget.

After Reeves slashed welfare benefits and prepared big departmental spending cuts to claw back £14bn of savings, the OBR said the chancellor's narrow headroom could be wiped out by trade and geopolitical tensions and volatile borrowing costs.

The OBR's chair, Richard Hughes, warned that if Trump persisted with his plan to impose 20% tariffs between the US and the rest of the world, it could reduce gross domestic product (GDP) by a peak of 1% and wipe out Reeves's headroom by the end of the parliament.

He said the hit to global trade from Trump's tariffs ranked alongside the extra costs from a jump in global interest rates as the major risks to the government's finances.

The forecaster said the government would have to spend an extra £10.1bn to service its debt by 2029-30, relative to its October forecast, amid rising global borrowing costs.