OBR forecast and 2026 Spring Statement: a mixed bag for SMEs
From downgraded growth, falling inflation and peak unemployment, it’s a mixed outlook for SMEs following published forecasts from the Office for Budget Responsibility (OBR), which Chancellor Rachel Reeves has reacted to in the 2026 Spring Statement.
While greater fiscal headroom could create a more predictable financial environment for businesses, with high unemployment offering up more available talent to choose from, declining consumer demand could mean budgeting and slashing prices.
Today saw the release of the OBR forecast in tandem with the announcement of the Spring Statement in parliament. The outlook makes for a mixed, although not shocking, picture for the UK’s business community, particularly SMEs.
Reeves, who outlined forecasts from the OBR, said: “This government has the right economic plan for our country”, which will restore economic stability amid global uncertainty.
News broke of the conflict in the Middle East as the OBR finalised its document, and it has since acknowledged the likely impact of energy price hikes on the UK economy.
The OBR is the independent body that monitors government spending plans and performance.
Here are the main business takeaways from the OBR forecast for SMEs.
1. GDP growth is downgraded
The economic growth forecast for 2026 is now 1.1%, down from the 1.4% forecast in November 2025. Yet, this is forecast to rise again during the years 2027-2028.
Impact on businesses: As growth has been downgraded, businesses will likely still have to grapple with lower consumer demand, less investment and operational budgeting. For those selling luxury, or non-essential goods or services, this could mean a tougher market. Internally, businesses may have to pause hiring plans, or externally, market expansion.
2. Inflation is expected to fall faster
The forecast shows that inflation is set to fall faster than initially forecast and is expected to reach 2.3% this year, meaning it could reach the Bank of England’s 2% target by the close of 2026.
Impact on businesses: Falling inflation will be good news for UK businesses, as it means greater economic stability, lower operating costs, and a more confident consumer market.
3. Unemployment is set to peak
The forecast states that unemployment is expected to peak at 5.3% this year, which is up by 0.4% from the 4.9% forecast last year.
Impact on businesses: High unemployment is a mixed bag for businesses, as on one hand, it opens up a wider available talent pool for firms to recruit from, but also means that consumers, due to higher unemploment have less spending power and are less able to buy from businesses, particularly if goods or services are deemed inessential. Reduced consumer demand this year could mean that businesses have to cut costs internally and slash product or service costs.
4. Fiscal headroom has risen
The Government’s buffer to handle economic shocks has risen from £21.7bn to £23.6bn. This means it is in a stronger financial position due to improved economic forecasts and has greater flexibility to cut taxes, increase public spending or manage debt without breaking its own fiscal rules.
Impact on businesses: As the increased headroom means the Government can better absorb economic shocks, businesses will operate in a more financially stable and predictable environment, allowing for greater confidence and ability to make business plans. However, UK businesses continue to operate in a high-tax and cost environment, including increases in employer National Insurance and minimum wage.
OBR results and Spring Statement 2026: Business leaders react
David Williams, head of group risk at Everywhen, a personal and business insurance provider, said: “Encouragingly, the broader economic backdrop continues to improve with lower inflation and interest rates. With this improved environment, many employers may feel better placed to invest in their people now or as part of future budgeting later this year, strengthening reward, wellbeing, and benefits packages…
“Today’s Spring Budget delivered no new announcements directly affecting employee benefits, a move that was widely expected and consistent with the government’s intention to avoid major policy changes in the Spring update. While we hoped for minor tweaks to help support employers and employees, the absence of change also brings a welcome period of stability for organisations that are still planning their benefits strategies around bigger changes announced over the last 18 months.”
Michael Kill, CEO, Night Time Industries Association, a UK organisation championing the night-time economy, said: “Today’s Spring Statement talks about stability and cautious optimism. But this is not a stable moment, and businesses will not be reassured by rhetoric after two years of relentless pressure…
Businesses cannot grow when customers are simply trying to get by.
“Escalating tensions in the Middle East have already driven Brent crude to $80 a barrel. LNG prices have surged by 30%. Wholesale markets are reacting sharply. For energy-intensive sectors like hospitality, leisure and the night-time economy, this is not abstract economics; it is an immediate and compounding threat.
“Consumers are under unprecedented strain. The cost of daily living remains high, household bills are rising again, and disposable income is at a low ebb. When consumers pull back, our sector feels it first and hardest. Fewer nights out. Reduced spend. Shorter dwell time. Lower margins. Businesses cannot grow when customers are simply trying to get by.
We can’t base our futures on empty forecasts. The time for reassurance and blame has passed. The time for action is now
“At the same time, youth unemployment remains a serious concern. The night-time economy has long been a gateway employer for young people, offering flexible, entry-level roles that build skills and pathways into long-term careers. Yet the increase in National Insurance contributions and rising employment costs have made it harder, not easier, to sustain those jobs. We are squeezing the very sectors that absorb and train young talent…
“If growth is truly the Government’s mission, then meaningful action must follow. Start with a VAT cut for hospitality and the night-time economy, a proven lever that stimulates demand, protects jobs, restores confidence and ultimately increases tax revenue through economic activity.
Businesses are not asking for optimism. They are asking for realism, partnership and leadership. Confidence is low. Faith is fragile. We can’t base our futures on empty forecasts. The time for reassurance and blame has passed. The time for action is now.”
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