Spring Forecast 2026 - Growth Downgraded, Borrowing Down, Financial Headroom at £24bn
Chancellor Rachel Reeves delivered the Spring Forecast 2026 on 3 March 2026. The Office for Budget Responsibility downgraded UK GDP growth to 1.1% in 2026 (from 2.0% previously), while borrowing fell by £18bn versus the Autumn Budget, increasing fiscal headroom against the stability rule to nearly £24bn. New commitments include dividend tax increases, ISA reform, and UK banks agreeing £11bn SME lending packages.
Context:
The Spring Forecast 2026 was delivered on 3 March 2026 alongside the OBR's Economic and Fiscal Outlook. This document provided an interim update on the economy and public finances without making a formal assessment against the government's fiscal rules (consistent with the government's commitment to a single major fiscal event annually at the Autumn Budget). The forecast arrived against a backdrop of significant geopolitical uncertainty: Middle East tensions had generated energy market volatility, US tariff threats were weighing on trade confidence, and UK manufacturing sentiment was subdued.
The headline growth downgrade from 2.0% forecast at the Autumn Budget to 1.1% for 2026 reflects these external headwinds. However, the Chancellor used the Spring Forecast to present a positive fiscal narrative: borrowing is down by nearly £18 billion compared to the Autumn, fiscal headroom against the stability rule has risen to almost £24 billion, and real wages have grown by £7 per week since June 2024. The OBR forecasts GDP per head growth of 5.6% over the Parliament, higher than previously expected.
For financial institutions, the headline tax changes are significant. The dividend tax basic rate rises to 10.75% and the higher rate to 35.75% from April 2026, a material change for wealth management clients and owner-managed businesses. From April 2027, the £20,000 ISA annual limit is retained, but £8,000 must be invested (with an exemption for over-65s), an explicit policy signal to shift cash savings into productive investment. The government also confirmed an £11 billion SME lending package agreed with UK banks, signalling a policy expectation of increased credit flow to smaller businesses.
Rules and Guidelines:
Dividend tax: basic rate rises to 10.75%, higher rate to 35.75% from April 2026, affecting individuals receiving dividends from investments or private companies
ISA reform (from April 2027): the £20,000 annual ISA limit is retained, but £8,000 must be directed to investment (stocks and shares) rather than cash savings; over-65s are exempt from the investment requirement
Capital allowances: writing down allowances (main rate) reduced by 4% to 14% from April 2026; a new 40% first-year allowance for main-rate assets applies from January 2026
Fuel duty frozen only until September 2026 (previously retained 5p cut), after which staged increases will apply
Tax on savings income increases by 2% across all bands from April 2027
New separate property income tax rates from April 2027: property basic rate 22%, higher rate 42%, additional rate 47%
SME lending: UK banks have agreed £11bn lending packages specifically targeting small and mid-sized enterprise growth, an informal policy expectation backed by Treasury engagement
Businesses Affected:
Wealth management firms and IFAs: dividend tax increases and the new ISA investment requirement are significant advice triggers for high-net-worth clients and business owners
Retail banks and investment platforms: the ISA rule changes create product design, communications, and compliance obligations from April 2027 onwards
Banks' commercial and SME lending divisions: the £11bn lending commitment creates implicit supervisory and political expectation of expanded SME credit activity
Corporate treasuries and financial controllers at businesses using capital allowances, the reduction in writing-down allowances from April 2026, changes investment appraisal inputs
Fund managers and asset managers with clients holding dividend-paying investments, the dividend tax increase affects after-tax returns and may trigger portfolio rebalancing
Mortgage lenders: interest rate cuts supported by the government are projected to save families £1,300/year on typical new fixed-rate mortgages, reducing arrears risk but also refi volumes
Next Steps:
Wealth and retail investment teams should update client communications and modelling tools to reflect the April 2026 dividend tax rate changes and the April 2027 ISA investment rules
Product teams at investment platforms should begin designing ISA products that meet the new minimum £8,000 investment requirement from April 2027; these need an FCA product governance review
Commercial banking teams should review SME lending pipelines and credit appetite in line with the £11bn commitment, and boards should understand any informal regulatory expectation this creates
Capital markets and corporate banking desks should update client briefings on the capital allowance changes (writing-down allowance reduction and new 40% first-year allowance) for corporate clients reviewing investment decisions
Tax and structuring advisers should prepare guidance on the new property income tax rates from April 2027 for real estate investors and mortgage-backed lending portfolios
CFOs and treasury teams should model the macroeconomic implications of the 1.1% growth forecast for 2026, this slower-than-expected trajectory has implications for credit quality, loan impairments, and deposit volumes
Source: HM Treasury, Spring Forecast 2026
