Background to Spring Budget 2023

Ahead of the Budget on 15 March, this briefing summarises the UK's economic situation and public finances. It gives the context within which the Chancellor will present the Budget.

The Office for Budget Responsibility (OBR) will publish revised forecasts for the economy and public finances on the same day. The Office for Budget Responsibility produce the Government’s official forecasts.

Economic situation in early 2023

Economic growth has been weak, with GDP at the end of 2022 roughly the same as a year before. High inflation hit confidence, squeezed budgets and constrained the ability of households and businesses to spend.

The economy is expected to remain weak in 2023, with household incomes under pressure leading to lower consumer spending, a crucial part of the economy.

However, data in February and early March indicate the economy is proving slightly more resilient than anticipated. There are tentative signs of an upturn — from very weak levels — in consumer and business sentiment, while unemployment remains low.

Falling wholesale gas prices suggest household energy bills will be lower later in 2023, which would help to accelerate the expected fall in inflation. Economists forecast inflation to fall from its current rate of about 10% to closer to 4% by the end of the year, partly due to lower energy prices and reduced global supply chain bottlenecks.

Nevertheless, GDP growth, even under a more optimistic scenario, is expected to remain around 0% in 2023. Growth prospects in subsequent years appear relatively weak, weighed down by the UK’s long-standing problem of a productivity growth slowdown.

Public finances

Government borrowing – the difference between public spending and income raised from taxes and other sources – has fallen from the peacetime record reached in 2020/21 but remains higher than the past 50-year average. Borrowing was equivalent to 5.2% of GDP in 2021/22.

In its previous forecast (November 2022) the OBR forecast that government borrowing would increase to 7.1% of GDP in 2022/23. The Government is providing significant support to households and business with energy costs and the cost of living. The Government’s debt interest spending has also increased sharply, largely due to high inflation.

It’s likely that borrowing in 2022/23 may be lower than is forecast by the OBR. The cost of supporting households and business with their energy costs has been less than expected. This has resulted in government borrowing being £30 billion lower, so far, in the 2022/23 financial year, than the OBR forecast in November 2022. Tax receipts have also performed better than expected.

Near term improvements are good news. The extent to which they are good news for forecast borrowing depends on whether the OBR expects them to persist. The improvement in tax revenues will continue into future years if the OBR thinks it is because the composition of the UK economy is more tax-rich. Lower spending on energy support will help in 2023/24, but not in future years, as the schemes end in March 2024.

The OBR’s March 2023 forecast

There are a myriad of factors that will influence the OBR’s March 2023 borrowing forecast. The OBR’s forecasts for the economy are key, as they influence tax revenues and areas of government spending.

The Chancellor’s policy decisions are also important, and he will be seeking to meet his newly approved targets for government borrowing and debt. Both targets are focussed on the fifth year of the forecast (currently 2027/28) and both were being met in the OBR’s November 2022 forecast, by relatively small margins. The Chancellor would have missed ‘fiscal targets’ if it weren’t for the tax rises and spending cuts announced in Autumn Statement 2022.

Further information

Find all of the Library’s research on the Spring Budget 2023 in one place.

The Library will publish a summary of the Budget on the evening of 15 March 2023.

For a quick explainer on the Budget, see our recent Insight: What is the Budget?

The Library briefing, The Budget and the annual Finance Bill discusses the way that Parliament debates the Budget and scrutinises the resulting Finance Bill. The next steps for Parliament, following the Budget, are summarised in section 5 of this briefing.

The Library briefing, The UK’s fiscal targets discusses the Chancellor's targets for the public finances.

The Library's Economic Indicators provides analysis of the latest UK and international economic indicators. The latest data are also available on the Library’s UK economy dashboard.