Chancellor's Spring Statement comes as inflation cools

When is the Spring Statement?

Chancellor Rachel Reeves will deliver her Spring Statement on Wednesday, 26 March, at approximately 12:30 p.m. This will bring an evaluation of the UK economy and is usually less far-reaching than the Autumn Budget.

What to expect?

Rachel Reeves will deliver her Spring Statement amid increasingly fine margins. Her £9.9 billion in headroom will likely have been erased amid faltering growth and rising debt interest costs. The Chancellor will aim to recoup the lost £10 billion to adhere to her golden rule of balancing day-to-day spending with taxation.

The OBR is expected to cut growth forecasts but lift its inflation forecasts. In October, the OBR forecasted growth of 2% for 2025, which seemed optimistic even then. Since then, the BoE has slashed its growth forecasts to 0.75%, and the OECD has reduced its expectations to 1.7%, which also looks too optimistic considering that the UK GDP fell -0.1 % MoM in January. However, the March services PMI was stronger than expected.

Meanwhile, figures released in February showed that borrowing came in higher than expected at £10.7 billion. Borrowing in the current fiscal year has already exceeded the OBR’s full-year forecast, putting yet more pressure on Reeves.

The Chancellor is not expected to adjust taxation, which means that the treasury will need to reduce spending. We already know that the government is set to save £5 billion a year on welfare, and Reeves is expected to slash spending by billions of pounds in what could be the biggest cuts since austerity. She has already announced that 10,000 civil service jobs will be axed.

UK CPI cooled by more than expected.

The Spring Statement will follow the UK CPI easing by more than forecast. UK CPI was 2.8% YoY in February, down from 3%. Core CPI cooled to 3.5% from 3.7%. However, service sector inflation remains sticky at 5%.

How might the markets react?

Large-scale spending cuts and a downward revision to growth could lower consumer inflation expectations, which raise BoE rate cut expectations. This could pull GBP lower. UK CPI data is also in focus on Wednesday.

Meanwhile, should the Chancellor fuel concerns over the outlook for the UK economy then domestically focused stocks on the FTSE 100 could come under pressure. Banks, retailers and house builders could fall, while defensives such as utilities could rise.

GBP/USD forecast – technical analysis

GBP/USD trades in a rising channel. The prices ran into resistance at 1.30 before rebounding lower and testing support at 1.29. Despite the pullback, the uptrend remains intact.

Buyers will look to recover higher towards 1.30. A rise above this key psychological level would open the door to 1.3050, the November high, and on to 1.31.

Should sellers take out support at 1.29, this opens the door to 1.2860. A break below here creates a lower low and opens the door to 1.28, the 200 SMA, and the lower band of the rising channel.

FTSE forecast – technical analysis

The FTSE’s recovery from 8460 low ran into resistance at 8740, the rising trendline resistance. The price rebounded lower from here, finding support as we predicted at 8600, the late February low. The picture is neutral with the RSI also at 50, lending itself to a breakout trade.

Buyers will look to rise above 8740 to create a higher high and bring 8800 into play.

Sellers would need to take out 8600 for a lower low and to open the door towards 8400.

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