Looking ahead to the Spring Forecast

At the Budget in November 2025, Chancellor Rachel Reeves announced that performance against the fiscal rules will from now on be assessed only once each year, in the autumn. This is intended to support her (sensible) commitment to having only one major fiscal event per year. The second forecast, in the spring, is therefore to be an ‘interim update on the economy and public finances’, without policy changes – unless there is ‘a significant change to the economic outlook that requires a response’.

This means that alongside the Spring Forecast on 3 March, there will be no official Office for Budget Responsibility (OBR) assessment of where the government stands with respect to its borrowing and debt targets. And, given the lack of major economic developments since November 2025, the plan is presumably for there to be no major policy announcements. 

The upcoming Spring Forecast should largely be seen, then, as setting the scene for the Autumn Budget later in the year. In this comment, we consider the Spring Forecast in that light. We step back from the minutiae and consider two key risks to the outlook which are unlikely to crystallise this spring, but which are likely to be considered by the OBR as potential issues for the Autumn Budget, especially in light of newly released data. The two risks are the forecast for net migration, and the relationship between inflation, wage growth and tax receipts. We consider each in turn. 

Migration forecasts

Net migration to the UK can affect the public finances through a range of channels. Immigrants are likely to earn money and pay taxes, and in some cases pay additional fees to the government, such as through visa fees or the surcharge paid by some immigrants for access to NHS services. Higher immigration may also fill gaps in some areas of the public sector workforce, which might reduce the cost of delivering public services (or improve the quality of service that can be provided for a given cost). 

On the other side of the ledger, immigrants use and benefit from public services, adding to pressure on those services. This means that with higher net migration, we might expect the state to have to spend more on public services in order to deliver the same outcomes. Given that new immigrants are disproportionally of working age, they are on average more likely to work, and less likely to make heavy use of health and care services. In most cases, they are not able to claim benefits, at least in the first few years after arriving in the UK. 

When it comes to the fiscal forecasts, and therefore how the government is performing against its forward-looking fiscal rules, what matters is how the OBR accounts for these factors in its forecasts of short- and medium-term impacts of net migration. The OBR models incorporate the additional revenues from taxes and surcharges paid by immigrants. The impacts on welfare spending are minimal, because most recent immigrants are ineligible for welfare benefits. And spending on public services remains unchanged: these budgets are treated as a policy choice, set out by the government at Spending Reviews, and not something that automatically adjusts when the population is larger and/or pressures on those services increase. 

With these baseline assumptions, the OBR’s most recent estimates from March 2024 are that an additional 200,000 net migrants in each of the next five years – or an additional 1 million people arriving over five years – would translate to a fall in its central borrowing forecast of around £20 billion per year, or around 0.6% of GDP. A reduction in net migration of 200,000 in each year would be expected to have a similar effect on the OBR’s forecast in the opposite direction. Given the various assumptions made in the OBR’s forecast, this is unlikely to reflect the actual effect of a large change in net migration on public sector net borrowing. For example, the OBR’s analysis suggests that accounting for the impacts of a larger population on public services (i.e. adjusting budgets to keep them at the same level in per-person terms) could reduce estimates of the positive effects of migration on the public finances by a third. 

These estimates should absolutely be treated as uncertain and imprecise. But they do provide a guide to what a change in net migration might do to the OBR’s borrowing forecast, and to the government’s ability to meet its fiscal rules. 

The OBR’s net migration forecast in November 2025, as shown by the dashed yellow line in Figure 1, had net migration falling from a peak of around 900,000 in 2023, to around 290,000 in 2025, and to around 260,000 in 2026 and 2027, before rising back to 340,000 – the ONS’s medium-term net migration projection – by 2030. However, the ONS’s most recent net migration figures, released just after the Autumn Budget in November 2025 (shown by the green line) put the provisional figure for 2025 at 204,000, considerably below the OBR’s forecast for that year. Some independent forecasts, such as that of the Migration Observatory in 2024, have a forecast similar to that produced by the OBR, with net migration settling just above 300,000. However, other forecasts released after the most recent Autumn Budget, such as that of James Bowes of the University of Warwick, have suggested that net migration could continue to fall to a net negative level in 2026. If net migration does continue to fall, or if it stabilises at a level significantly below the OBR’s forecast, this would be likely to materially hit growth in total GDP and overall tax revenues. 

Figure 1. OBR net migration forecasts versus out-turn

Note: Migration estimates taken mid-year to mid-year, such that figures for 2025 represent net migration figures from July 2024 to June 2025. Revised out-turn used up to 2024; provisional out-turn used for 2025. Forecasts form March and November 2025 are shown as dashed lines. 

Source: OBR Economic and Fiscal Outlook, November 2025, chart 2.8, updated using ONS long-term international migration statistics, November 2025.

Although the provisional data suggest that net migration is undershooting the OBR’s November 2025 forecast, we do not expect a major revision to the medium-term migration forecast in the spring. Historically, the OBR has based its forecast on the Office for National Statistics (ONS) medium-term migration projections, but has adjusted the short-term path in response to policy changes and out-turn data. It is possible that in light of recent out-turn data, the OBR could downgrade its short-term revenue forecasts (because of a smaller-than-expected labour force). 

However, a change in the net migration forecast for one or two years would be expected to have a much smaller impact on the public finances. More significant is the forecast for the medium term – whether net migration rises or continues to fall further, and where it is forecast to stabilise in the medium run. It is this forecasting judgement which will have a greater impact on the medium-term borrowing figures and hence on the government’s performance against its fiscal rules (which apply in 2029–30). 

Given that the ONS is not expected to produce new migration projections until after the Spring Forecast, we do not expect any major change in the OBR medium-term migration forecast on 3 March. Instead, we might expect the OBR report published alongside the Chancellor’s speech to contain indications of how sensitive the forecast would be to different migration assumptions, and to lay the groundwork for a change later in the year – something which could have a material impact on the fiscal outlook. 

Public finance out-turns

A second potential risk to the public finances has emerged from tax receipt out-turns in recent public finance data. One particularly notable and somewhat surprising feature of the OBR’s November 2025 forecast was the fact that, despite a downgrade to the outlook for productivity growth, tax receipts were forecast to be £16 billion higher in 2029–30 than under the previous forecast. This partly reflected an expectation that inflation and wage growth will remain higher, having overshot previous forecasts during 2025. It also partly reflected an assumption that economic growth will be concentrated in more heavily taxed components of economic activity, such as labour income and household consumption, an assumption itself related to the forecast for higher wage growth. 

This is a modelling and forecasting judgement for the OBR. And for the OBR model to be internally consistent, it makes sense that a forecast for higher inflation and higher wage growth would come hand in hand with a forecast for more ‘tax-rich’ growth in the medium term. In particular, we would expect higher inflation and higher wage growth to pass through to higher income tax receipts – given that income tax thresholds are currently frozen in cash terms, and as more of the growth of the economy runs through workers’ payslips – and to higher VAT receipts – both due to higher prices, and as a greater fraction of economy-wide expenditure goes towards household consumption. However, one puzzle is that between April and December 2025, neither income tax receipts nor VAT receipts significantly surpassed the March 2025 forecast, despite wages and inflation turning out higher than expected (Figure 2). 

Figure 2. OBR inflation, wage growth and tax receipt forecasts in 2025 versus out-turns

Note: Inflation forecast and average hourly wage growth forecast and out-turns measured at the quarterly level. VAT and income tax receipts forecast and out-turns and inflation out-turns measured at the monthly level. Out-turn data for average hourly wage growth (which can be compared directly to the OBR forecast) only available to Q2 of 2025. For ease of legibility, income tax receipts in January 2025, which are significantly higher at £48 billion due to self-assessment returns, are not shown. Income tax receipts include those from self-assessment returns, PAYE and other income tax receipts.

Source: Forecasts – OBR Economic and Fiscal Outlook, March 2025. Out-turns – CPI is ONS series D7G7; nominal hourly wage growth is from OBR, Economic and Fiscal Outlook, chart 1.2; tax receipts are from ONS monthly public finance out-turn data, PUSF, series DZLS.

That said, in the most recently released public finance data, for January 2026, there was something of a rebound in tax receipts, perhaps consistent with elevated inflation and wage growth flowing through to the exchequer. Notably, income tax receipts from self-assessment returns, most of which is received in January of each year, came in almost £2 billion (6%) higher in January 2026 than had been forecast just a few months earlier (and almost £3 billion, or 10%, higher than forecast last March). PAYE income tax receipts and VAT receipts for January were in line with the OBR forecast made in November 2025. 

We should be careful not to read too much into one month of data – especially when those data could be revised. It remains to be seen whether tax receipts will continue to surprise on the upside in coming months. In any case, the key thing is the OBR’s judgement about how the economy will evolve over the next few years, and we would not expect the OBR to revisit that so soon (only three months) after making it, off the back of only a few months of public finance out-turns. 

This is therefore not a risk that will crystallise this spring, especially given the relatively strong January tax data. But this issue is of material importance to the fiscal forecast going forward (the boost to annual tax revenues from the change to both inflation and real wage growth was estimated at around £25 billion in 2029–30), and is worth paying attention to, including in the OBR analysis published alongside the Spring Forecast. 

Summary

This year’s Spring Forecast has been billed as relatively inconsequential, without any formal assessment of performance against the fiscal rules, and with a government pledge not to make any policy changes unless there is a major deterioration in the forecast. A major deterioration seems unlikely, and therefore so too does a major policy response. This is not guaranteed; previous Chancellors have proven unable to resist the urge to tinker with fiscal policy outside of Budgets, even after having promised not to do so. The 2025 Spring Statement is a case in point. But with an increased buffer against the fiscal rules, and after a period of relative economic calm, there are good reasons to suppose that this event will look rather more like Philip Hammond’s 2018 Spring Statement, which contained an updated forecast from the OBR and nothing else. That would be welcome. Even so, the updated economic and fiscal forecast is likely to contain indications of potential risks looming on the horizon – risks which, if crystallised, could raise the spectre of another tough Autumn Budget.