The UK Treasury is banking on pro-growth reforms to boost the economy, but the Office for Budget Responsibility (OBR) isn’t convinced. With forecasts set to downgrade growth expectations, Chancellor Rachel Reeves faces a tough balancing act between stimulus, fiscal discipline, and regulatory constraints.
The UK Treasury’s bid to reshape economic policy with pro-growth reforms is running into a familiar roadblock: the Office for Budget Responsibility (OBR). Chancellor Rachel Reeves is preparing for a potentially tough fiscal reckoning as the OBR’s upcoming economic forecast is expected to downgrade growth expectations—despite the government’s efforts to stimulate the economy through supply-side reforms.
The government has been rolling out a series of reforms designed to unlock growth, including overhauls in planning, pension investments, and infrastructure policy. However, these long-term initiatives face a cold reception from the OBR, which applies strict criteria when incorporating policy changes into its growth models. Unless a measure’s economic impact can be confidently projected within a five-year window, it is unlikely to be reflected in official forecasts.
This presents a challenge for Reeves, who is relying on these reforms to counteract sluggish economic performance. The OBR’s anticipated lower growth outlook could widen the UK’s fiscal gap, forcing the Treasury to make tough decisions on spending cuts or tax hikes to keep public finances on track.
Historically, the OBR has maintained a cautious stance on economic forecasts, prioritizing proven data over political optimism. Even when policy shifts seem likely to boost growth, they require substantial empirical backing before making their way into official projections.
For example, planning reforms aimed at accelerating housing and infrastructure projects might increase productivity, but their impact is difficult to quantify within the OBR’s short-term forecast horizon. Similarly, pension fund adjustments designed to drive investment into UK businesses are viewed as beneficial but uncertain in terms of immediate GDP contribution.
The Treasury’s fiscal rules, particularly its commitment to achieving a current budget surplus by 2029-30, add another layer of complexity. With borrowing costs high and tax revenues constrained by slow growth, Reeves is facing mounting pressure to balance economic stimulus with fiscal prudence.
One potential outcome is deeper spending cuts. But with government departments already operating under tight budgets, further reductions risk stifling public services. Another option is tax increases, though politically fraught given the broader cost-of-living concerns and business sentiment.
The government is also pushing for a more pro-growth regulatory environment. Business Minister Jonathan Reynolds has urged the Competition and Markets Authority (CMA) to become more agile and less risk-averse. The logic is that overly cautious regulatory decisions are dampening investment and innovation.
However, financial regulators warn that taking a more relaxed approach to risk could lead to unintended consequences, including increased corporate failures or market instability. This tension between encouraging economic dynamism and maintaining regulatory oversight remains a key challenge for policymakers.
For the Treasury, the next few months will be pivotal. If the OBR’s forecasts remain conservative, Reeves may have to recalibrate her strategy, either by doubling down on reforms that deliver faster returns or by preparing the public for tougher fiscal measures ahead.
One thing is certain: without the OBR’s endorsement, the Treasury’s pro-growth narrative may struggle to gain traction in the near term. The battle between economic ambition and institutional caution is far from over, and how Reeves navigates it will shape the UK’s financial trajectory in the years ahead.