Rachel Reeves’ Spring Statement offered UK retailers a steadier set of economic forecasts, but little immediate relief on the costs squeezing margins, as the Office for Budget Responsibility (OBR) warned that geopolitical shocks could quickly derail the outlook.
The chancellor pointed to ‘stability’ and slightly improved headroom in the public finances, with fiscal headroom rising to £23.6bn, while reiterating that this was not a tax-changing event.
But the wider picture for trading conditions remains muted. The OBR now expects GDP growth to slow to 1.1 per cent in 2026 (down from 1.4 per cent previously), before picking up to 1.6 per cent in 2027 and 2028.
For retailers, the most important consumer backdrop is easing inflation, but not fast enough to feel like a reset.
The OBR forecasts CPI inflation falling from 3.4 per cent in 2025 to 2.3 per cent in 2026, reaching the 2 per cent target in late 2026, while unemployment is projected to peak at 5.3 per cent.
With hiring demand already cooling, the risk is that shoppers stay cautious, limiting retailers’ ability to pass on further cost increases.
That tension, weak pricing power versus persistent operating costs, was reflected in industry reaction.
Nishith Rastogi, founder and CEO at Locus, said the statement “offers little meaningful cost relief for retailers”, warning that when demand is “steady rather than strong” the pressure lands hardest in “fulfilment and delivery economics”, pushing retailers to scrutinise how efficiently orders move through their networks.
Theresa Lindsay, chief marketing officer at Novuna Finance, said the statement fell short of a clear plan to relieve pressure on households and businesses, pointing to fuel and energy costs as a live concern and arguing that higher employer National Insurance is acting as “a handbrake on hiring and investment”.
She also called for business rates relief to be extended to more of hospitality, retail and leisure, an issue that will stay firmly in focus as current relief is unwound and reforms take effect from April 2026.
“Today’s figures underline the scale of the economic challenge: growth is fragile, unemployment has climbed to 5.2 per cent and is expected to rise, and businesses are cutting back,” added Helen Dickinson, chief Executive at the BRC. “While household finances may improve later in the Parliament, the immediate risk is to jobs, especially in retail. At a time when job vacancies are falling and confidence is weak, the priority should be protecting employment and strengthening living standards.”
“Instead, retailers face a cost of doing business crisis. Employment costs rose by more than £5bn last year, and poorly implemented reforms in the Employment Rights Act risk adding further cost and complexity at the worst possible moment. Reforms must raise standards without deterring hiring.
“The Chancellor spoke about boosting investment in communities. Our high streets are the backbone of local economies, yet business rates continue to undermine their viability. While Government has taken some steps to fix the current system, it is broken and must be overhauled entirely to reduce the burden on the high street once and for all.
“Retail has unparalleled reach across the country, and stands ready to work with the Government to ‘spread’ and ‘unlock’ opportunity in every part of Britain. But to do so, Government must get a grip on the cost of doing business so retailers can invest confidently in people, places and prices.”
The bigger near-term risk to retail is energy-led volatility.
The OBR explicitly noted that escalating conflict in the Middle East could have “very significant impacts” on the UK economy, a reminder that any improvement in inflation and consumer confidence could be fragile if oil and gas prices remain elevated.
Click here to sign up to Retail Gazette‘s free daily email newsletter
