UK Spring Forecast 2026: Economic outlook for retail businesses

The UK government has set out its new Spring Forecast 2026, with chancellor Rachel Reeves telling Parliament that her economic plan is “the right one” for a more uncertain world. For retail businesses, the key talking points were reports of inflation falling, borrowing allegedly being lower than expected, and household incomes that are anticipated to rise.

Inflation is now expected to return to target in the second half of the year, earlier than previously forecast, the HM Treasury said. The Office for Budget Responsibility (OBR) expects GDP per person to grow 5.6 percent, with people forecast to be “over 1,000 pounds a year better off after accounting for inflation” by the next election.

In her speech, Reeves said: “Inflation is down, borrowing is down, living standards are up… and the economy is growing.” She added that the six interest rate cuts since the general election mean “more money in their pockets to spend in local shops and on the high streets”.

For retailers, measures aimed at lowering household costs remain key. The government confirmed a 150 pound reduction in energy bills from next month, a continued freeze on rail fares and support for childcare. The chancellor said the interest rate cuts “will save households over 1,300 pounds per year on a typical new fixed-rate mortgage”.

On the public finances, borrowing is forecast to fall by nearly 18 billion pounds compared with the Autumn forecast. Public sector net borrowing is expected to decline steadily to 1.8 percent of GDP by 2029-30. Reeves said the government has “restored economic stability” and highlighted that headroom against her stability rule has increased to 23.6 billion pounds.

However, the retail industry has voiced concern about the immediate outlook. Responding to the forecast, Helen Dickinson, chief executive of the British Retail Consortium (BRC), warned: “Today’s figures underline the scale of the economic challenge: growth is fragile, unemployment has climbed to 5.2 percent and is expected to rise, and businesses are cutting back.”

She added: “The immediate risk is to jobs, especially in retail.” Dickinson also pointed to rising employment costs, which she said increased by more than five billion pounds last year, and noted that reforms under the Employment Rights Act risk adding “further cost and complexity at the worst possible moment”.

The BRC further reiterated calls for business rates reform, stating: “Our high streets are the backbone of local economies, yet business rates continue to undermine their viability… it is broken and must be overhauled entirely.”

For fashion retailers and brands, the Spring Forecast hints at an improving consumer environment, yet continued cost pressures at store level. Dickinson concluded that retail “stands ready to work with the government… 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”.