Spring Statement 2026: OBR Forecast For Unemployment, Now Expected To Peak At 5.3% This Year

Chancellor Rachel Reeves shared her Spring Statement in parliament today. The main messaging from the Chancellor was that she has ‘The right economic plan for Britain‘. However, the Office for Budget Responsibility (OBR) updated its forecast for unemployment, and it now expects the unemployment rate to rise to 5.3% this year.

Unemployment to Peak at 5.3% This Year (currently at 5.2%)

According to the February 2026 ONS Labour market statistics, the UK Unemployment Rate is 5.2%. Youth Unemployment Is Now at 14%. Just last week the latest NEETs data was also released from ONS revealing that there are around 957,000 young people currently classified as NEET, up from 946,000 the previous quarter. When looking at the ONS Labour market data Work Foundation analysis found that the Labour market the data suggests that the UK has the fastest annual increase in unemployment in the G7 BusinessLDN also highlighted that London has the highest regional unemployment rate of 7.6% up from 7.2% last quarter.

According to the Office for Budget Responsibility: Economic and fiscal outlook report for the Spring Statement, the document states: “Labour market weakness still appears to be driven by entrants into the labour force struggling to find work amid subdued hiring demand” and continues:

Not yet clear what the impact will be on the labour market of new technologies such as AI and higher labour costs

“In the central forecast, we judge that the recent uptick in unemployment is likely due to cyclical factors but there is uncertainty around the persistence of this weakness. There is also some evidence which points to the possibility of some of the rise in unemployment being structural. It is not yet clear what the impact will be on the labour market of new technologies such as AI and higher labour costs from policies such as the rise in employer National Insurance contributions.“

Headlines from the Chancellor on the Spring Statement:

• In the Chancellor’s Spring Forecast shows inflation falling and borrowing down, while living standards and the economy grow, with people set to be £1000 better off.
• Forecast shows borrowing is down by nearly £18 billion compared to Autumn and headroom against the stability rule has increased to almost £24 billion.
• The Chancellor said her economic plan is even more important in a world that has become yet more uncertain, to secure the economy against shock and protect working families.

The OBR’s forecast shows inflation, borrowing and debt interest are all falling while investment is rising. It now forecasts that inflation will return to target in the second half of this year – earlier than forecast in November – and delivering on the government’s plan to ease pressure on households.  

The decisions the Chancellor took at the last Budget to ease the cost of living, including reducing people’s energy bills by £150 and freezing rail fares, are specifically expected to bring inflation down by 0.4ppt in 2026-27.  

Cutting Borrowing: Borrowing is down by nearly £18 billion compared to the Autumn

The forecast shows borrowing is down by nearly £18 billion compared to the Autumn, with borrowing this year set to be the lowest in six years and falling below the G7 average for the first time in 22 years.  

The Chancellor said that they are expecting to spend nearly £4bn less on debt interest next year than was forecast in the Autumn.

The forecast shows headroom to the stability rule has increased to almost £24 billion. 

The Spring Forecast also reflects the recently announced £3.5bn of new funding for DfE in 2028-29 to support ambitious reforms to SEND. This includes over £1.8 billion in additional funding for Devolved governments through the Barnett formula.  

Growing the economy   

The OBR’s forecast shows GDP per person is now set to grow more than was expected in the Budget – with growth of 5.6% over the Parliament. Despite the global uncertainty, Britain’s economy remains strong – with  faster growth than any other European country in the G7 in 2025.  

The OBR has also forecast that people will be over £1,000 a year better off after inflation, delivering on the government’s priority to build an economy that makes working people better off.

Sector Reaction

Ben Harrison, Director of the Work Foundation at Lancaster University, said:

“Despite the Chancellor seeking to strike a robust tone regarding the impact of the Government’s economic agenda, ultimately the pace of progress remains slow.

“The OBR’s forecasts underline that 2026 is likely to continue to be highly challenging – particularly for workers struggling with the cost of living crisis and for young people struggling to find a secure job.

“The growth forecast for 2026 has been revised down to 1.1%, with the OBR suggesting that unemployment has yet to peak and inflation will only return to target by the end of the year. However, these forecasts could be further impacted by the potential impact of escalating war in the Middle East.

“At a time when nearly nine in ten people state the cost-of-living continues to be a major issue facing them and the UK economy, it’s critical that the Government seeks to go further and faster in driving wider economic growth during a period of international uncertainty.

“The Chancellor promised further announcements to tackle stubbornly high levels of youth unemployment. As part of this, it’s critical that she strengthens the Government’s Youth Guarantee. Eligibility should be expanded to include 22-24 year olds, and the scheme should kick in long before young people have been out of work for 18 months, as is currently proposed. Most importantly, the scheme must deliver employment placements that offer secure, well-paid jobs, and provide a platform for young people to progress further in their working lives.”

Dr Emily Andrews, Director of Policy and Research at Learning and Work Institute (L&W), said:

“The Chancellor did not make any policy announcements today, as she promised – but she said reform announcements were coming on youth employment. This is clearly one of the issues of greatest concern to her – much more so than the recent overall rise in the unemployment rate, which the OBR forecasts to peak in 2026 before falling back again by 2030.

“A significant package of measures on youth employment was announced last year. The latest statistics note that the number of NEET young people are high – at almost one in seven – but stable. However, the highest NEET rates are among 21-24-year olds, a cohort excluded from many of the Government’s existing Youth Guarantee measures. We continue to call on the Government to extend the Youth Guarantee to young people aged up to 24.”

Neil Carberry, Chief Executive of the Recruitment and Employment Confederation (REC), said:

“Today’s Spring Statement, which comes amid rising gilt rates and energy prices, shows again that growth must be the government’s first priority. The only way to tackle the cost-of-living crisis is to support businesses to grow by addressing the barriers they face. The Chancellor outlined a wide range of policies designed to do this, but far more urgency is required in the delivery on these plans. And government needs to heed the calls of employers who are worried that some policies will make the situation worse.

“Today, too many of Britain’s businesses are still on the brakes and leaving our growth underpowered, while international businesses find the UK less attractive than they did once. The upcoming announcements on youth unemployment including apprenticeship reform, need to tackle disincentives to hire created by poor regulation and high taxes, as well as ensuring skills support is more effective.”

“Having just one fiscal event each year gives employers much needed stability, allowing them to get on with running their businesses without the distraction of constant tax and spending speculation.”

Responding to the Chancellor’s spring statement, Amira Campbell, National Union of Students President said “Today, the Chancellor repeatedly recognised that this student loan system is unfair. There is cross-party support for fixing a broken Tory system. This is in no doubt thanks to ongoing pressure from students, graduates, and families across the country.

“The Treasury has missed an opportunity today. The Chancellor must and should show how she is going to make this system work for the country at last.

“You cannot fix a broken funding model by making it even more unfair. Up front, we want to see the Chancellor unfreeze the repayment threshold, and put money back into the pockets of graduates. Fundamentally, student finance needs reform. Labour keep saying they inherited a broken system. We say, well then what are you going to do about it?

“Student finance is a plague on the houses of all parties. This Labour Government have a generational opportunity to invest in young people, and we hope they seize it.”

Dr Ryan Swift, IPPR North research fellow, said:

“Stability is what the country needs, and it appears stability is what this Spring Statement has offered. The Chancellor’s decision to increase the headroom has paid off for now.

“But people listening will be measuring their own financial stability. The conflict in the Middle East will raise concerns that household bills will be back on the rise.

“With unemployment rates in the North among the highest in the country, and set to increase this year, the government needs a clear plan to take action.

“Improving regional growth and providing further investment into industry and vital infrastructure,unlocking potential in the North must be part of the answer.”

Ben Willmott, head of public policy at the CIPD said:

“Against an uncertain geopolitical backdrop, it’s critically important that the Government creates conditions that improve confidence and stability for businesses to deliver job creation and skills development. 

“We welcome the Chancellor’s recognition of the challenges that many young people face entering employment, particularly the collapse in apprenticeship starts, and we’re encouraged to hear the Government will be setting out more reforms to support young people in the coming weeks.  

“However, meaningful progress will require bold action. Introducing an Apprenticeship Guarantee for 16 to 24-year-olds, a measure strongly backed by employers, would help ensure many more young people have a clear pathway into work.  

“The Government can also support young people and employment more widely by reviewing the pace of National Living Wage equalisation and ensuring the Employment Rights Act measures don’t act as a further headwind to job creation. 

“This means meaningful consultation with employers and where necessary compromise on key measures in the Act still to be decided in secondary legislation. The Government must also ensure there is a well-funded communications campaign to ensure employers are aware of the changes ahead of time and adequate resources are allocated to Acas, so smaller businesses in particular have access to the support they need to comply. 

“More broadly on growth, we need to see measures that will help employers across all sectors of the economy invest in skills and innovation. For example, ensuring the new Growth and Skills Levy helps employers invest in training their workforces to tackle skills shortages and supports the technology adoption that can improve productivity.”

Sam North, Co-Founder and CEO of SCALE said:

“The Chancellor has missed a trick by not bringing forward new policies. Without decisive action, she risks stabilising at mediocrity. Britain’s fastest-growing small businesses are capable of delivering far greater economic impact, but momentum will stall if ambition isn’t matched with policy.

“Skilled people are a vital ingredient required to scale, yet building teams has become harder at precisely the moment we need businesses to create new employment opportunities. Founders have been clear: simplify the system, reward long-term growth, and make it easier to hire. Time-limited Employer NI relief could transform job creation across the SME ecosystem. Instead, the cost per hire has risen sharply, while inflation and tighter margins have squeezed room for expansion.

“When capital markets are cautious, individual investors need a nudge. Extending incentives like EIS/SEIS for follow-on growth rounds would also have sent a strong signal. More deliberate investment into high-growth companies, particularly those led by women and underrepresented entrepreneurs, is essential. 

“Acceleration won’t come from waiting until autumn. It will come from the Government proactively creating conditions for calculated risk-taking and from capital backing ambition. Align those incentives, and the UK can move beyond stabilising and start scaling.”

Below, Owen Dixon, Founder of Best Student Halls, said:

“The debate over freezing the Plan 2 student loan repayment threshold is unfolding against a wider shift in the financial landscape facing young people.

“Graduates in England repay 9% of earnings above £28,470 under Plan 2 loans. If that threshold remains frozen while wages rise modestly, repayments will take a larger share of income in real terms.

“Individually, each of these pressures might be manageable. Taken together, they narrow disposable income at precisely the stage when many young people are entering the rental market for the first time without the structure of university accommodation.

“Housing is typically the single largest outgoing for students and recent graduates. A graduate earning at or just above the repayment threshold may see deductions increase at the same time as they are trying to sign a 12-month tenancy, relocate for work, or move out of shared housing.

“When early-career finances tighten, housing decisions tend to become more cautious. That has implications not only for graduates’ mobility and independence, but for rental markets in university cities more broadly.”

Petra Wilton, Director of Policy and External Affairs at the Chartered Management Institute (CMI), said:

“The Chartered Management Institute (CMI) welcomes the Chancellor’s commitment in the Spring Statement to ensuring a generation of young people are not left behind. However, for the Youth Guarantee and apprenticeship pathways to be successful, the government must address the primary driver of workplace retention: the quality of day-to-day management offered to young people.

“The Chancellor noted today that the number of young people not in education, employment, or training (NEET) has increased by 113,000 over the last five years. To reverse this trend, the government must look beyond the “offer” of a job and focus on the quality of the experience once a young person arrives. Efforts to help these young people find a path into work will only succeed if the people managing them have the skills they need to get this right.

“We continue to urge the Government to consider the vital role that management apprenticeships play. Employers are using these apprenticeships to develop line managers across the country who will then have the know-how to support young people, making sure they don’t just get short-term job placements that tick a box.” 

Ann Watson, CEO of Enginuity said:

“The Chancellor’s Spring Statement  reiterates the Government’s commitment to strengthening skills and apprenticeships, which will be crucial to the future of UK engineering and manufacturing.

“The Government’s current focus on supporting NEETs presents an opportunity to go further and deeper. The Chancellor mentioned she will be announcing further reforms for young people in the coming weeks.

“Within this, we would like to see specific support for SMEs which make up the vast majority of the country’s manufacturing employers: reducing their cost base, helping them to build their workforce, and engaging them fully in policy development. It is vital that young people have access to high-quality apprenticeships and that SMEs have the support that they need to benefit from this talent.

“Enginuity has recently launched The Policy Centre for Supply Chain and SMEs, which will unify and amplify SME voices at the highest levels of policymaking. We believe that, by unlocking the growth potential of SMEs, we can finally achieve the step-change that our economy needs to thrive.”