Spring has sprung and that means the UK government’s Spring Statement has been released. Like with anything it’s a balancing act and should really offer no surprises after the Autumn Budget.
First, I want to mention the OBR has halved its 2025 growth forecast from 2% to 1% but has been upgraded beyond this year. So, the growth forecast is 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029.
Inflation fell at the beginning of the year from 3% in January to 2.8% in February. This is forecast to rise again to 3.8% in July but will average 3.2% overall for 2025. It is expected this will fall again in 2026 to average 2.1% and will meet the BoE target of 2% in 2027.
The Chancellor mentioned no further tax policies. This is good news. But the government are trying to crack down on tax avoidance, which they are hoping will raise a further £1bn.
Now for spending, and there is a lot of it, which many are hoping will help growth in the UK and instil confidence in the UK economy to encourage investment.
Defence has been a big topic globally and the UK is no different. There will be an increase in defence spending to 2.5% of GDP by April 2027, but this budget will provide an extra £2.2bn for the Ministry of Defence. The spending is going to be domestically focussed which the government is hoping will help the UK economy.
For example, a minimum of 10% of the MoD’s budget will be spent on tech such as drones and AI technology, which will drive forward “advanced manufacturing production in places like Glasgow, Newport, and Derby”.
The government is also making the UK more attractive for overseas buyers of UK defence goods and services by providing extra UK Export Finance in the form of loans. This is important as defence spending increases, especially across Europe. There are a number of good and established UK defence companies including BAE Systems, Rolls-Royce and Qinetiq (which has been awarded a £15 million contract by the MoD).
There isn’t just spending on defence, the government also promised in the autumn budget to build houses… and a lot of them. This spring budget confirmed that, forecasting around 1.3m homes in the UK over the next five years. There will be an additional £2bn investment in social and affordable housing, and a construction training package to train workers. The Planning and Infrastructure Bill as well should also help cut costs and delays when building, the costs mainly coming from legal challenges and red tape around environmental regulation. This should help the UK house builder companies such as Berkeley Group.
The underlying message from a lot of the Chancellor’s speech is to boost growth in the UK. UK company fundamentals are attractive. Currently, the UK is trading on low multiples vs other regional markets and its own history. And generally, UK companies have low leverage. Tariffs have been a big talking point this year, but the UK should have limited exposure to US tariffs.
The documents released after the statement also mention options for ISA reforms, to encourage savers and retail investors. This should be a good thing if anything comes to fruition. There is also work between the Treasury, regulators and the stock exchange for initiatives which should encourage more businesses to list and more UK savings back into the UK domestic market.
The market reaction was neutral which I would say is to be expected. The spring statement was never meant to rock the boat. The UK 350 is up 5.73% YTD and the 100 is up 7.05% YTD. There is obviously a push for investments to become more domestically focussed and plenty of opportunities to buy good UK businesses at attractive valuations.
Emily Cave – Research Analyst
FPC25333
All charts and data sourced from FactSet
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