London (Reuters) – British finance minister Rachel Reeves announced on Wednesday a downward revision of government spending projects and budget cuts, but global economic uncertainty could push the United Kingdom to increase its taxes this year.

The largest budget control body in the country, the Office for Budget Responsibility (OBR), has half reduced its economic growth forecasts for 2025 and estimates that catching up towards the end of the decade will not make it possible to fully compensate for the difference.

According to the OBR, the British economy should grow by 1% this year, while it was targeting 2% when Rachel Reeves presented his first budget in October.

It also targets an increase in gross domestic product (GDP) of 1.9% in 2026 and 1.75% on the rest of the decade, added the minister, during the presentation of a half -yearly budget update. The body previously tapped on growth of 1.8% in 2026 and 1.5% in 2027.

Budget cuts will in particular affect social spending, which will be reduced to 0.3% of GDP, allowing the Labor government to save 3.4 billion pounds according to OBR forecasts.

“The global economy has become more uncertain, which generates insecurity at the national level, because commercial models become more unstable and loan costs increase for many major economies,” said Rachel Reeves.

While the OBR has revised upwards its forecasts for public loans, Rachel Reeves promised to stick to the rules in this area and declared that it had restored a tax reserve of 9.9 billion pounds (11.83 billion euros).

“Thanks to the measures I have taken today, I can confirm that I completely restored our tax reserve,” she said during the traditional “spring declaration” on the economic situation.

Rachel Reeves intends to balance daily public spending with tax revenue by 2030.

The yields of British sovereign bonds increased somewhat after the announcements of Rachel Reeves before retreating while the British Debt Management Bureau (DMO) indicated that it would issue fewer bonds than provided in 2025 and 2026.

Around 3:20 pm GMT, the British Gilt at 30 lost 5.5 base points to 5.313% after having increased by 3 base points immediately after the declarations of Rachel Reeves.

A fragile reserve

The tax reserve of 9.9 billion pounds is at a historically low level and remains vulnerable to the slowdown in the economy and the growth of borrowing costs, in particular in the face of the risks represented by American customs duties.

If the United States increases by 20 percentage duties so-called “reciprocal” customs duties on its trading partners, British growth could be 1% lower than its expected peak in 2026-2027.

US President Donald Trump is expected to announce his decision on April 2.

According to the OBR, the British government will have to borrow 47.6 billion pounds more by the end of the decade than what had been estimated at five months ago.

“If things get bodied for the economy and public finances, then (Rachel Reeves) will be back to square one and may again have to reduce its expenses, increase taxes or both,” said Philip Shaw, chief economist with Investc Bank.

Last year, Rachel Reeves and Prime Minister Keir Starmer promised voters that they would not increase income tax and those aimed at “people who work”.

The OBR also revised upwards its inflation forecasts, anticipating an average price increase of 3.2% in 2025, against an estimate of 2.6% previously.

Inflation should increase by 2.1% in 2026 and 2% in 2027, according to office data.

(Report David Milliken, Andy Bruce and Andrew Macaskill, with Harry Roberton, written by William Shimberg; Pauline Foret, edited by Kate Entringer)

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