What finance consultants actually suppose Budget will do to your financial savings, mortgage and wages

Number-crunchers have spent the last 24 hours getting stuck into Rachel Reeves’ landmark first Budget.

The Chancellor vowed to “invest, invest, invest” in order to fix broken public services suffering after years of Tory neglect – but experts say this will come at a cost. She unveiled over £40billion in tax rises and over £70billion more in day-to-day spending.

It will provide a welcome boost for the NHS, which is struggling under the weight of mammoth waiting lists, underfunded schools and the crumbling justice system. Ms Reeves vowed to “fix the foundations” as the new Government delivers a huge reset.

But all of that is going to have a knock-on effect, with economists projecting sluggish earnings growth and higher inflation. Ms Reeves herself admitted that wages will be impacted by her £25billion raid on employers’ national insurance contributions.

She told the BBC: “Look, what alternative was there? We had a £22 billion black hole in the public finances.” But she conceded: “I said that it will have consequences. It will mean that businesses will have to absorb some of this through profits and it is likely to mean that wage increases might be slightly less than they otherwise would have been.”

The Chancellor said he wants Wednesday’s Budget to be a one-off with no repeats of the large tax rises. Economists, however, believe there may be more to come in folloiwing years.

Here we look at some of the verdicts so far and what experts have to say.

Short term pain – long term gain?

Think-tank the Resolution Foundation said public services would see the biggest investment drive since the early 1980s. But its snap analysis warned that both rich and poor face a squeeze on their income to pay for it – and it could backfire.

Analysts projected disposable income will grow by 0.5% across the current Parliament. This is more than the 0.3% in the final five years under the Tories, but would stll be the worst term for living standards ever under Labour – including during the 2008 financial crisis.

Analysts also said that some Government departments face having to find over £10billion cuts to balance the books.

What will happen with wages?

The Resolution Foundation’s snap assessment found that Ms Reeves’ raid on employers’ National Insurance contributions – which will raise £25billion – is likely to dampen wage growth, creating another squeeze.

Mike Brewer, interim chief executive of the Resolution Foundation, said: “ Rachel Reeves ’s first ever Budget was never going to be a crowd-pleaser, given the profound and often conflicting challenges she faced, from failing public services to perilous public finances, weak growth and stagnating living standards.

“By prioritising extra spending on public services and investment, the Chancellor is borrowing an extra £32 billion a year by the end of the Parliament, with another £41 billion coming from tax rises too. The short-term effect of these changes will be better funded public services – not just across schools and the NHS – but, critically, also in our justice system. But families are also set for a further squeeze on living standards as the rise in employer National Insurance dampens wage growth.”

He said that the hope is that “this short-term pain will eventually turn into a long-term living standards gain”.

Bad news on inflation, but it should help drive growth

Inflation and mortgage costs are on track to be higher than previously expected following the Budget, according to the fiscal watchdog.

The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation in the short-term – although it will also help drive stronger economic growth. Inflation is set to stay above the Bank of England’s target of 2% until 2029, according to the latest forecasts.

This means it will average 2.5% this year and 2.6% next year, economists believe. After that they expect it will go down, depending on the Bank of England’s response.

The latest OBR forecasts also indicate that inflation will rise to 2.6% in 2025 – significantly above the 1.5% rate previously predicted.

Interest rates and the impact on mortgages

It is likely that interest rates will be around 0.25% higher than they would have been without Ms Reeves’ spending plans, according to the OBR. This will have a knock-on effect for mortgage rates, which may be higher than previously estimated.

Average mortgage rates are expected to rise from an average of 3.7% to 4.5% over the next three years, slightly above previous projections, according to the OBR.

Will there be tax rises or cuts?

The Institute for Fiscal Studies (IFS) thinks so. Number-crunchers say the Government will need to raise up to another £9billion after next year to avoid cutting spending on departments like transport and the environment.

Although day-to-day spending is set to rise rapidly after Wednesday’s Budget, increasing by 4.3% this year and 2.6% next year, it then slows down to just 1.3% per year from 2026. This raises the possibility of tax rises or cuts to Government departments.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said keeping to a 1.3% increase will be “extremely challenging, to put it mildly” and Ms Reeves’s plans “will not survive contact with her Cabinet colleagues”. He said: “I am willing to bet a substantial sum that day-to-day public service spending will in fact increase considerably more quickly than supposedly planned after next year.

“1.3% a year overall would almost certainly mean real-terms cuts for some departments. It would be odd indeed to increase spending rapidly this year and next, only to start cutting back again in subsequent years.

“I’m afraid, at least on the surface, this looks rather like the same silly games playing we got used to with the last lot – pencil in implausibly low spending increases for the future in order to make the fiscal arithmetic balance.”

He added there “must be a risk” that taxes will have to rise again.

Will the economy grow?

Labour put growing the economy at the heart of its General Election campaign following years of Tory faiure.

The OBR has said the UK economy is set to grow more than expected this year and next year partly due to a boost from the Budget. But things are less clear in the longer-term thanks to the tax measures announced by Ms Reeves.

The OBR has predicted that UK gross domestic product (GDP) will grow by 1.1% in 2024. This is higher than its previous forecast of 0.8%, while 2% growth is predicted next year.

The OBR said that the fresh set of Budget policies, which will see spending increase by almost £70 billion each year, will “deliver a temporary boost to GDP”. However, it said this positive impact will “fade to zero” within the next five years.

New forecasts also showed the economy is expected to grow by 1.8% in 2026, 1.5% in 2027 and 1.5% again in 2028. This is lower than the predictions before the Budget. This pointed towards 2% growth for 2026, 1.8% growth for 2027 and 1.7% growth for 2028.

The OBR warned that tax increases would partly lead to “crowding out” of business investment – shaving medium term economic growth by 0.2%.