A gloomy growth forecast from the Bank of England has piled the pressure on Rachel Reeves ahead of a verdict from the Budget watchdog in March.
The Bank of England cut interest rates but halved its growth forecast in a decision a week after the Chancellor made a key speech on growth.
Bank of England Governor Andrew Bailey was supportive of Reeves’ plans but said they would “take time” to have an effect.
“Growth rate in the UK has been low since the financial crisis – addressing those questions is critical, so I very strongly agree with the Chancellor.
“Structural policies take time to come through,” he said.
Time is not on the Chancellor’s side as she looks ahead to economic and fiscal forecasts from the Office for Budget Responsibility in March.
Ms Reeves said she was “still not satisfied with the growth rate” on Thursday.
The OBR forecast will give a verdict on whether she will be able to stick to her “ironclad” fiscal rules without raising taxes or slashing spending.
She will then present her spring statement in the Commons.
As the Government has said there will only be one fiscal event per year in autumn, this is expected to be an update to MPs rather than an event to set out an emergency Budget.
But the Chancellor will need to decide how to respond if the £9.9 billion of leeway she outlined in her October Budget has significantly narrowed.
A spending review, due later this year, is already expected to require departments to make efficiency savings worth 5% of their budgets.
Paul Johnson, director of the influential economics think tank the Institute for Fiscal Studies, called the Bank of England update a “pretty pessimistic forecast”.
The Bank of England cut interest rates to 4.5% and Bank halved its growth forecast for the UK economy to 0.75% for this year, down from previous estimates of 1.5%, before accelerating again in 2026 and 2027.
Mr Johnson posted on X: “OBR is generally much more optimistic than the Bank, but if it moves in a similar direction that will spell trouble for the Chancellor.”
US tariffs, even if not imposed directly on the UK, could hit growth.
“If there were to be tariffs that contributed to a fragmentation of the world economy, that would be negative for growth for the world economy. I hope that doesn’t happen, but that could happen,” Bank of England Governor Mr Bailey said.
“The impacts on inflation are much more ambiguous.”
