(March 26): Chancellor of the Exchequer Rachel Reeves clawed back £14 billion (US$18 billion or RM79.7 billion) worth of fiscal room with cuts to welfare and government spending, after the UK’s growth forecast for the current year was cut in half.

Reeves was forced to lay out a package of spending moves on Wednesday as part of her midyear statement on the condition of the UK public finances. Driving her decision to cut was a sharp downgrade in growth by the Office for Budget Responsibility, which now expects GDP to expand by just 1% this year. That compares with its previous forecast of 2%.

Such weak growth along with higher borrowing costs had wiped out the buffer Reeves had against her self-imposed fiscal rules in the months following her October budget. The OBR said that headroom had been rebuilt by the chancellor’s new measures.

Debt markets seemed to welcome the emphasis on fiscal responsibility. Gilts rallied as the government announced a smaller-than-expected slate of bond sales for the upcoming fiscal year, with issuance skewed away from longer-dated securities. Yields on 30-year debt fell as much as nine basis points to 5.28%. The UK plans to sell £299 billion of bonds, less than the £302 billion estimated in a Bloomberg survey of market participants, but still one of its biggest issuance programs on record.

“I am not satisfied with these numbers,” she said of the growth forecasts, claiming that her planning reforms — a key plank of the government’s agenda to lift growth — would add 0.2% to GDP by the end of the parliament.

The UK economy has barely grown since Labour won a landslide election victory last summer, with opposition parties accusing Reeves of talking down the economy before destroying confidence with more than £40 billion in tax hikes at the October budget.

“What the British people know is that this is a consequence of her choices,” said Mel Stride, the Conservatives’ Treasury spokesman. “She is the architect of her own misfortune.”

Reeves said the world has changed and pointed to international factors that are weighing on growth. US President Donald Trump has upended the global trade system with widespread tariffs, while European governments are having to divert billions toward defence spending as the White House reduces its support for the continent against Russian aggression.

Still, Britain’s weak economic outlook is a blow for Reeves, who is having to cut back government expenditure to ensure she meets her key fiscal rule, which requires day-to-day spending to be covered by tax receipts in the years ahead.

Paul Johnson of the Institute for Fiscal Studies said the headroom was still small enough to leave the chancellor at the “mercy of events.” He said “we can surely now expect six or seven months of speculation about what taxes might or might not be increased in the autumn.”

“With historically low headroom, the risks the chancellor is blown off course again — either by external shocks or forecast changes from the OBR — are uncomfortably high. Markets should brace for the possibility of more forceful corrective action in the Autumn budget,” said Bloomberg Economics.

 “There is nothing progressive about working people paying the price of economic irresponsibility,” Reeves said. “The British people put their trust in this government because they knew that we would never take risks with the public finances.”

Uploaded by Magessan Varatharaja