IFS Zooms In: The Economy The Spring Forecast explained
Mar 4, 2026
Ben Zaranko, an IFS economic researcher focused on forecasts and public finance risks, and Bee Boileau, an IFS researcher on public spending and defence, discuss the Spring Forecast. They cover how higher energy prices from the Middle East conflict could drive inflation and squeeze households, the fiscal trade-offs of raising defence to 3% of GDP, and key uncertainties: unemployment, migration and volatile capital gains tax receipts.
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Forecast Reiterated Plan To Cut Borrowing
- The Spring Forecast largely reiterated November's plan: borrowing falls quickly and debt stabilises by the decade's end.
- Small improvements came from stronger tax receipts and lower debt interest, offset by weaker labour market and extra spending.
Middle East Shock Raises Inflation And Interest Rate Risk
- Conflict-driven energy price rises are a negative terms-of-trade shock that make the UK poorer and raise inflation.
- Higher gas and oil prices could add about 1 percentage point to CPI and keep Bank Rate higher for longer.
Hitting 3% Defence Would Swallow Departmental Growth
- Getting defence to 3% of GDP is costly — roughly £14bn in today's terms — and would consume most planned real growth in departmental spending.
- Faster defence rises force either real cuts elsewhere or tax increases; it's not achievable 'in the margins'.