The Spring Statement and potential implications for agriculture

Chancellor Rachel Reeves delivered the Spring Statement on 3 March, framed by heightened geopolitical tensions following renewed conflict in the Middle East.

As anticipated, the statement introduced no major new policy measures. Instead, attention focused on the updated economic forecast from the Office for Budget Responsibility (OBR) and what it means for fiscal headroom, inflation and business investment.

Here we examine the potential impacts on agriculture.

The OBR’s central forecast points to GDP growth of 1.1% in 2026, revised down from previous projections.

GDP is then expected to rise to 1.4% in 2027 and 1.5% in 2028, with GDP per capita rising 5.6% over the course of this Parliament.

The OBR estimates that the Chancellor has only a small amount of fiscal headroom against the Government’s fiscal rules set at the start of this Parliament.

This leaves limited room for significant new spending or tax cuts unless growth outperforms expectations.

The good news is that the OBR expects inflation will fall back to the 2% target during 2026, paving the way under normal circumstances for easing monetary policy.

However, this projection assumes relatively stable global energy markets.

The escalation of conflict in the Middle East and the effective closure of the Strait of Hormuz, a route for around a fifth of global oil shipments, introduces significant risks.

If disruption continues, higher oil and gas prices could increase UK inflation and delay interest‑rate cuts.

For businesses already operating on tight margins, including farmers and processors, that would mean borrowing costs staying higher for longer.

For agriculture, delayed interest-rate reductions could continue to put pressure on working capital finance, investment loans and cash flow.

This could slow on‑farm investment in efficiency improvements and environmental measures at a time when policy reform is encouraging structural transition.

Even before the geopolitical shock, the OBR noted only moderate productivity gains and subdued business investment.

Periods of uncertainty, whether fiscal, monetary or geopolitical, weaken business confidence and confidence is often the key driver of investment. Investment today supports the productivity and incomes of tomorrow.

For agriculture and the wider food sector, capital-intensive investment decisions are particularly sensitive to:

• Borrowing costs
• Energy price stability
• Trade predictability
• Clarity from the Government on long‑term regulatory and environmental frameworks

Higher financing costs and volatility in energy markets could have implications for the rates of investment into upgrades to equipment, livestock housing, cold storage, slurry storage and decarbonisation efforts, with potential knock‑on effects on productivity and resilience.

Looking across the OBR forecast and the geopolitical risks now surrounding it, several issues are being closely monitored for agriculture:

• Energy costs: There is an increased possibility of upward pressure on heating, fuel and electricity costs for farms and processors. Oil and gas prices have already increased significantly
• Input costs: Gas prices are linked to fertiliser costs and energy bills, while oil prices impact diesel, plastics (e.g. bale wrap), agrochemicals and transport
• Inflation and interest rates: Market expectations of delayed rate cuts could keep financing costs high, tightening business margins
• Fiscal constraints: Limited headroom restricts the Government’s ability to invest in the economy

These developments come at a time when many households had only just begun to see some easing in the cost‑of‑living squeeze. Renewed uncertainty could therefore also affect demand across domestic food markets.