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UK's Treasury chief set to announce further welfare cuts while boosting defense spending

[March 26, 2025] By PAN PYLAS

LONDON (AP) — Britain's Treasury chief is set to announce further cuts in welfare and boost defense spending when she delivers an update on the state of the public finances later Wednesday.

Against a backdrop of sluggish economic growth, which caused borrowing to run higher than anticipated, Rachel Reeves will unveil measures intended to meet her self-imposed budget rules.

Reeves' spring statement to Parliament will be made in response to what is likely to be a fairly gloomy economic assessment by the government's independent forecaster, the Office for Budget Responsibility.

The agency is widely expected to slash its forecast for growth, leaving a hole in the government's revenue expectations.

It's also expected to reveal that changes to welfare announced by the government last week will not achieve the 5 billion pounds ($6.5 billion) of promised savings. That means Reeves will have to find even more money, to the likely unease of many lawmakers in her Labour Party.

Reflecting geopolitical turbulence caused by the return of President Donald Trump, Reeves is also set to tell lawmakers that a “more insecure world” requires a greater focus on national security. She is due to confirm a 2.2 billion-pound ($2.9 billion) increase in defense spending, which Prime Minister Keir Starmer has said is the biggest increase since the end of the Cold War.

“This moment demands an active government stepping up to secure Britain’s future," she is set to say, according to remarks released by the Treasury.

The British economy, the sixth-largest, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the new Labour government, which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-run average.

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Britain's Chancellor of the Exchequer Rachel Reeves is shown a military vehicle during a visit to Rheinmetall BAE Systems Land (RBSL) in Telford, England, Monday March 24, 2025. (Jacob King/Pool via AP)

Critics say Reeves is partly responsible for gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since increased taxes, particularly on businesses.

She received some welcome news Wednesday, with official figures showing that price rises in the U.K. moderated by more than anticipated in February. The Office for National Statistics said consumer price inflation fell to 2.8% from 3% the previous month. Most analysts had expected a more modest decline to 2.9%.

Though inflation is still higher than the Bank of England's 2% target, Reeves will likely hope that easing price pressures will lead to bigger interest rate reductions than predicted. That would lower the interest payments the government pays on its debt, potentially freeing up money for the government to spend on public services.

Last week, the bank kept its main U.K. interest rate unchanged at 4.50% even though the economy is barely growing and the nation faces more uncertainty in light of the tariff policies being enacted by the Trump administration in the U.S.

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