Volkswacht Bodensee - UK set to cut public spending by billions of pounds

The spending update comes as the Labour government, elected in July after a landslide election win, faces sluggish economic growth and rising borrowing costs.

In a glimmer of good news, Britain's annual inflation rate eased to 2.8 percent in February, down from 3.0 percent in January, according to the Office for National Statistics.

But despite the slowdown, inflation remains elevated above the Bank of England's two percent target. The central bank kept interest rates unchanged last week after a series of cuts, warning of "economic uncertainty".

Reeves has warned that since her inaugural budget in October, "the world has changed."

Heightened global uncertainty over US tariffs and the war in Ukraine have added to the UK's economic woes, chipping away at the Labour government's £9.9 billion ($12.8 billion) fiscal cushion.

Prime Minister Keir Starmer has recently pledged to hike spending on defence, with the government announcing late Tuesday a £2.2 billion boost next year.

"This moment demands an active government stepping up to secure Britain's future," Reeves said in a press statement ahead of the fiscal update.

An advocate of iron discipline over public finances, Reeves is set to detail cuts to welfare payments and government departmental budgets in Wednesday's highly-anticipated update.

- Gloomy outlook -

An accompanying forecast from the Office for Budget Responsibility, the country's spending watchdog, is expected to paint a gloomy picture of the outlook for the UK economy.

"The Chancellor (Rachel Reeves) is unlikely to announce much today that will help quell the fears around the UK economy," commented Lindsay James, investment strategist at wealth management firm Quilter.

"Economic growth is miniscule and risks going backwards," she added.

Reeves's attempts to shore up the public purse are constrained by her own fiscal rules and her pledge not to increase taxes, raising the prospect of spending cuts.

The rules prevent her from borrowing to fund day-to-day spending and call for debt to fall as a share of the gross domestic product by 2029-2030.

The centre-left government has already announced it will slash the costs of running the government by 15 percent over the next five years, targeting annual savings of over £2 billion across Britain's civil service.

It also announced contested cuts to disability welfare payments, in the hopes of saving more than £5 billion annually by the end of the decade.

While Labour has highlighted increased funding for housing, the struggling National Health Service, and reforms to workers' rights, it is spending cuts that have remained in the spotlight.

The cuts add to criticism piled on Labour after it scrapped a winter-fuel benefit scheme for millions of pensioners last year.

The update also comes ahead of a business tax hike, announced in Labour's inaugural budget, coming into effect in April.

Businesses heavily criticised the tax increase, warning about the adverse effects on hiring and wages.

L.Meier--VB