UK Slashes Billions in Welfare Spending cuts

The UK's Labour government faces intense scrutiny on Wednesday as Chancellor Rachel Reeves prepares to brief lawmakers on her spending and tax plans, as well as outline the UK's economic outlook amidst uncertain conditions.

Reeves is expected to announce billions of pounds in spending cuts, seeking to close the budget deficit caused by rising borrowing costs since her first fiscal plan was announced last autumn.

The minister had previously pledged to adhere to the "fiscal rules" she set out in her Autumn Budget last October, which stipulate that day-to-day spending must be funded from tax revenues and ensure that public debt as a percentage of economic output falls by 2029-2030.

Reeves is scheduled to deliver her Spring Financial Statement to Parliament at 12:30 p.m. London time, along with the latest economic forecasts from the Office for Budget Responsibility, the country's independent public finance watchdog.

According to reports, the Office for National Statistics is expected to cut its forecast for UK economic growth for 2025, halving its previous estimate of 2%. This will increase pressure on government borrowing requirements and prompt Reeves to cut public spending by around £10 billion ($12.96 billion).

Since announcing its first budget last October, Reeves has faced increasing pressure to cut public spending, raise taxes, or backtrack on its financial commitments. This comes amid rising borrowing costs, which analysts say has eliminated any fiscal space available in its initial plan.

The UK also faces the risk of a temporary spike in inflation, according to the Bank of England, in addition to the continued economic slowdown in recent months.

Reeves is widely expected to highlight the changes in the economic landscape since her last budget announcement, including the uncertainty caused by US President Donald Trump's tariffs, which are seen as inflationary and could hamper the UK economy.

In a press release issued Tuesday, the UK Treasury said that Reeves will pledge during her Spring Statement to deliver "national security and renewal," adding that her plan "aims to stimulate economic growth, protect working people, and keep the country safe."

Reeves will also emphasize "the need to act quickly in a changing world," and is expected to unveil a major step toward achieving the 2.5% of GDP defense spending target by allocating an additional £2.2 billion ($2.6 billion) to the defense sector next year, according to the Treasury.

Daiwa Capital Markets analysts Emily Nicol and Edward Malling noted that Chancellor Rachel Reeves' statement is expected to address "the erosion of fiscal margins through tighter spending controls."

The analysts explained that "when announcing the October Budget, the Office for Budget Responsibility projected a current budget surplus for 2029-30 of around £10 billion, which was the fiscal margin on which the government relied to achieve its primary objective of balancing the current budget by that date. Today's figures indicate that this margin has been completely wiped out."

They added that "with economic growth below the Office's recent forecasts and the Office poised to cut its 2025 GDP forecast from 2% per annum by almost half, the higher than expected level of public borrowing and lower tax revenues may be partly attributable to cyclical economic weakness, which is likely to correct itself over time."

But they warned that "the rise in UK gilt yields of 20 to 40 basis points across most of the curve since mid-October would be viewed by the Bureau as a structural development. Given some other deviations, and in the absence of new compensatory policies, this is likely to have weakened the government's fiscal buffers."