Chancellor: "Rising Trade Uncertainties... UK to Become a Defense Industry Superpower"
The UK government has downgraded its economic growth forecast for this year from 2% to 1%, announced cuts to welfare spending, while pledging to increase defense expenditure.
On the 26th (local time), Rachel Reeves, the UK Chancellor of the Exchequer, presented the spring economic forecast and fiscal plan in Parliament, citing the rapidly changing global situation and economic uncertainties.
The Office for Budget Responsibility (OBR) projected that the Gross Domestic Product (GDP) will grow by 1% this year compared to last year. This is half of the 2% forecast announced in the autumn budget last October. However, the growth forecast for next year was revised upward from 1.8% to 1.9%, and for 2027 from 1.5% to 1.8%.
Although Reeves did not directly mention the tariff war under the Donald Trump US administration, she noted that trade conditions have become unstable, stating, "With rising global uncertainties, the UK's public finances and economy have been affected."
In response to fiscal pressures, the UK government chose to cut public spending rather than adjusting fiscal rules or raising taxes. For new applicants of universal health-related welfare benefits, support payments will be halved and frozen until 2030, and eligibility criteria for Personal Independence Payment (PIP), which targets disabled individuals, will be tightened.
Additionally, government department administrative costs are set to be reduced by 15% by 2030. It is expected that 10,000 civil servants will be reduced through voluntary retirement schemes and other measures.
However, defense spending will increase by ?2.2 billion in the 2025-2026 fiscal year, raising it to 2.36% of GDP. Reeves explained that 10% of the defense equipment budget will be invested in new technologies centered on drones and artificial intelligence (AI). She also emphasized increasing investment in military infrastructure such as naval vessels to make the UK a "superpower in the defense industry."
Some members of the main opposition Conservative Party and Labour Party criticized this fiscal plan. Conservative Party leader Keir Mather said that the Labour government is causing financial chaos, stating, "When Reeves announced the last budget, she said she would break the glass ceiling, but now it feels like the roof is collapsing over our heads." Labour MP Debbie Abrams also said, "Welfare cuts lead to severe poverty and deteriorating health."
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