25 February 2026: Reeves’ 2026 spring forecast will likely be low-key

Last year, the Chancellor made waves with her spring statement. This year, she says she wants to avoid creating headlines. Is that something she is even capable of achieving?

The Government has been clear that this spring forecast is not a budget or a fiscal event, so there are no scheduled significant tax or spending announcements. The forecast is even scheduled for Tuesday rather than the usual prime-time post-PMQs slot.

So why is the spring forecast happening at all? By law, the OBR must produce economic and fiscal forecasts at least twice each fiscal year, and the Chancellor must respond to both. This spring forecast is the second OBR forecast of this fiscal year.

There haven’t been big changes to the economic outlook since the budget, so the Chancellor is unlikely to have to address the kind of deteriorating forecasts for the public finances which she faced at both the spring statement and the autumn budget in 2025.

The cost of Government borrowing has been a bit lower than the OBR previously expected, which will help the public finances, and the Government’s latest tax and borrowing figures were surprisingly good. But this is offset by lower-than-expected growth and migration. The OBR’s migration assumptions already looked too high at the autumn budget, so some adjustment is likely there.

Inflation has remained above target, but the Bank of England now expects inflation to slow much more quickly, in large part because of energy price cuts and other bill freezes announced at the budget. Indeed, inflation is likely to finally return to the Bank of England’s 2% target in the coming months, meaning that the prediction of two or even three rate cuts this year is possible.

The Bank of England is seeing signs of a long-awaited productivity revival as British firms lay off workers, in a “dishoarding“ of excess labour built up after the pandemic.

Governor Andrew Bailey told MPs yesterday that the UK is “probably ahead of several other economies,” even though it is not matching the stronger growth seen in the US.

He told MPs on Parliament’s Treasury Committee that BOE staff have evidence that post-COVID labour hoarding is “unwinding,” one of several factors that could be boosting output on a per-hour worked basis.

British businesses were hesitant to lay off workers because they found it difficult to recruit in a tight labour market following the pandemic. The BOE thinks the reversal of this trend may now be pushing up unemployment, but also helping the economy in other ways.

“We are beginning to see some signs of an uptick in productivity,” Bailey confirmed recently. The “dishoarding of labour may well come through in somewhat higher productivity.”

The UK suffered one of the sharpest slowdowns in productivity growth after the financial crisis. This stagnation has held back wages and fueled the political discontent plaguing the current Government.

However, recent data suggest that productivity may have picked up sharply over the past year, particularly when using alternative employment estimates. The headline employment figures suggest a more subdued picture, though economists still do not trust the UK’s main labour market estimates, which are currently under review.

The pound saw increased volatility yesterday, but it ended up pretty much where it started. It rallied to a high of 1.3536 but ran into some selling interest, which drove it back down to close at 1.3497.

President Trump promised a long speech for his State of the Union address. Last night, he delivered on a promise, which in itself was a rarity.

The address lasted more than an hour and 40 minutes, making it the longest speech before a joint session of Congress in at least 60 years, according to the American Presidency Project, which has tracked the length of every speech since 1964.

The runtime included lengthy pauses for applause, disruptions, guest recognition, and cheers for the U.S. men's Olympic gold-winning hockey team.

The State of the Union allows the President to set or reset the national agenda, and Trump's comes at a moment when most Americans say the country is worse off than it was a year ago, according to the latest polls.

Donald Trump promised a “golden age” for America in his second term. And the President sought to sell that message of economic success in his State of the Union speech.

Based on the latest economic data, it would be difficult to claim the age is yet golden. Friday’s GDP report showed growth in 2025, at 2.2%, was the slowest since the post-COVID-19 expansion began in 2020. And a core gauge of inflation ended the year running at 3%, a whole percentage point above the Federal Reserve’s goal.

Still, the recession that some prominent economists had warned about when Trump unveiled his “Liberation Day” tariffs last April didn’t happen, or at least hasn’t happened yet, in part because he lowered the levies in pursuit of trade deals with trading partners. And even if inflation is above target, the pass-through of import duties to prices has proved less alarming than many had expected.

The labour market has recently shown signs of stabilising after a slowdown last year. Employers added 130,000 jobs in January, compared with an average of just 15,000 a month in 2025, and the unemployment rate edged down to 4.3%. Wages are also rising faster than consumer prices, allowing workers to post real income gains. FOMC members have said recently that a “run rate” of 30k new jobs a month is the level that is expected to see growth at an “acceptable level”.

However, that is in itself a “Catch 22” for Trump. Having nominated Kevin Warsh to be Chairman of the Federal Reserve with the express mandate to begin cutting rates immediately. Higher-than-target inflation and job growth at this stage of the economic cycle may make rate cuts a difficult sell to other FOMC members. Warsh does not have a “golden ticket”, meaning his vote is only one of many among an FOMC that has seen a slight hawkish turn since the new members arrived on January 1st.

3% inflation isn’t good enough for the Federal Reserve, and it isn’t low enough to justify cutting interest rates. Chicago Fed President Austan Goolsbee yesterday said that the Central Bank should avoid moving too quickly while price pressures remain sticky and the economy continues to expand. With core inflation hovering near 3% and unemployment steady, the case for patience remains strong, he argued.

“Stalling out at 3% is not a safe place to be for a myriad of reasons,” Goolsbee said, speaking at a conference hosted by the National Association for Business Economics.

Goolsbee warned against “front-loading” rate cuts before there is convincing evidence that inflation is moving decisively back toward the Fed’s 2% target.

The dollar barely reacted to the State of the Union. It continues to “bang on the door” of resistance between 98.00 and 98.20, but so far, it doesn’t have the momentum to break significantly higher.

Yesterday, it reached a high of 97.98 and closed at 97.90.

The gloom and doom about Europe's future is overblown, says the frontrunner to succeed Christine Lagarde as President of the European Central Bank, but Klaas Knot says the continent still has unfinished business if it wants to reach its potential.

Speaking in Kyiv at the National Bank of Ukraine in a double interview with the current Governor of De Nederlandsche Bank, Olaf Sleijpen, the former Dutch Central Bank boss Knot told reporters that a lot has already changed for the better as the bloc does some soul searching amid shifting geopolitical realities.

"Is the glass half empty or half full? For me, the glass is absolutely half full," Knot said.

Widely seen as a leading contender to succeed Lagarde as the Eurozone's top technocrat, Knot extolled the virtues of further European unification, including politically contentious ideas such as closer European defence integration.

"I believe that a significant part of our defence efforts can be much better and more efficiently organised at the European level," said Knot, who also highlighted the benefits of doing more as a single European unit to tackle the energy and climate transitions.

Europe's policy priorities have been shaped in recent years by two landmark reports from former Italian Prime Ministers Enrico Letta and Mario Draghi, which urge the EU to dismantle the cumbersome internal barriers between member states and to champion large-scale cross-border projects to boost productivity and strengthen competitiveness.

But on defence, the continent's track record is uneven. Despite a wave of ambitious initiatives, procurement looks set to remain fragmented, and strong dependencies on U.S. capabilities remain. Knot made no mention of the Canadian plan, in which funding for rebuilding Europe’s defence could come from the NATO budget, which would be tough for President Trump to oppose since it would comply with his demands but divert funding from U.S. defence contractors to European companies.

Twenty-four hours after Knot and Sleijpen left Ukraine, Russia pummeled the country with 50 missiles, with Kyiv mostly relying on scarce U.S. technology to intercept them, for lack of suitable European substitutes.

Knot conceded that the ambition to involve all 27 countries was not always feasible, but said that the current political preference for "coalitions of the willing" captures some of those benefits.

European countries have banded together in smaller groups to try to inject new momentum into key priority areas like defence, as an advancing Russia and retreating America expose the sluggish pace at which the Brussels bureaucracy can respond.

"We have a complicated way of making decisions, but that is by virtue of the fact that we are 27 countries that have deliberately decided to share sovereignty," said Knot, who pointed to key assets the continent holds, among them Europe's rule of law and an independent Central Bank that underpin the euro's credibility and appeal.

In a wide-ranging interview with the Wall Street Journal published Saturday, European Central Bank President Christine Lagarde reflected on her tenure.

Alongside stating her “mission accomplished” on price stability absent new major shocks, she highlighted another priority, making the euro “fit for the future” by advancing the digital euro. “We have really worked long and hard on our digital central bank currency,” she said, adding that she hoped it would be “a legacy that I will also leave behind.”

Given last week’s reports that Lagarde could step down before her term ends in October 2027, these words take on added significance. They also raise a critical question, one that has received far less attention than speculation about what Lagarde’s early exit could mean for European politics and monetary policy: what will become of the digital euro?

As one of the most advanced and closely watched central bank digital currency projects in the world, the initiative has been strongly tied to her tenure.

Will her replacement have the same commitment as Lagarde has shown? Or will the project “die on the vine”, which would be a massive setback for supporters of stablecoins globally?

The Euro continues to drift lower as monetary policy offers little incentive for traders to take a view on its future path, though there does seem to be solid support around 1.1750.

Yesterday, it fell to a low of 1.1766, but again found sufficient support to close a little higher at 1.1775.

Have a great day!