Spring statement: Trump's tariffs could wipe out Chancellor's surplus in a week as growth is downgraded

The watchdog’s assessment also indicated the Chancellor would have missed her goal of balancing the nation’s books without action.

Responding to the growth forecast, Ms Reeves said: “I am not satisfied with these numbers.

“That is why we on this side of the house are serious about taking the action needed to grow our economy. Backing the builders, not the blockers.”

As such, Ms Reeves was forced to set out measures totalling around £14bn, including a series of cuts, to ensure she met her “non-negotiable” goal of balancing day-to-day spending against tax receipts, rather than borrowing.

The Chancellor told MPs yesterday: “The increased global uncertainty has had two consequences.

“First, on our public finances. And second, on the economy.”

She explained: “The threat facing our continent was transformed when Putin invaded Ukraine. It has since escalated further and continues to evolve rapidly.

“At the same time, the global economy has become more uncertain, bringing insecurity at home as trading patterns become more unstable and borrowing costs rise for many major economies.”

The risk of global uncertainty was emphasised by the fact that the OBR said that if Donald Trump introduces tariffs on the UK next week, as he has pledged to do, Ms Reeves’ £9.9bn in fiscal headroom would be wiped out instantly.

In its economic forecast, the watchdog said the most “severe” scenario, in which the UK and other nations retaliated to the imposition of tariffs, would see GDP 0.6 per cent lower than forecast this year and 1 per cent lower next year.

This scenario would also “almost entirely eliminate” the Chancellor’s £9.9bn headroom against her fiscal rules, potentially forcing her to implement further spending cuts or tax rises.

The UK is hoping to conclude an economic deal with the US, which would avoid widespread tariffs.

Talks between the UK and US on avoiding tariffs remain ongoing, with Trade Secretary Jonathan Reynolds visiting Washington last week to discuss an “economic deal”.

But Mr Reynolds was unable to secure an exemption for the UK from steel tariffs imposed by Mr Trump earlier in March.

Ms Reeves was handed better news as the OBR upgraded its forecasts for subsequent years with GDP expected to increase by 1.9 per cent in 2026, 1.8 per cent in 2027, 1.7 per cent in 2027 and 1.8 per cent in 2029.

The watchdog also forecast that the Government’s planning reforms will increase GDP permanently by 0.2 per cent in 2029/30, representing an additional £6.8 billion and pushing housebuilding to a “40-year high”.

A delighted Chancellor told MPs: “That is the biggest positive growth impact that the OBR have ever reflected in their forecast, for a policy with no fiscal cost.

“And taken together with our plans to increase capital spending, this Government’s policies will increase the level of real GDP by 0.6 per cent in the next 10 years.”

Ms Reeves confirmed a further squeeze on the welfare budget, building on cuts to the disability and incapacity bill set out earlier this month.

Fresh changes to universal credit are expected to save £4.8bn rather than the more than £5bn in 2029/30 hoped for by ministers.

York Central MP Rachael Maskell urged Ms Reeves to look at the welfare reforms again, saying that she recognised the importance of fiscal responsibility before adding: “However, as a Labour Party we’ve got an additional responsibility around having social responsibility.”

Ms Reeves signalled cuts in Whitehall, with “voluntary exit schemes to reduce the size of the civil service”, taking advantage of technology to “make Government leaner, more productive and more efficient”, saving £3.5bn by 2029/30.

The Chancellor said that overall, day-to-day spending will be reduced by £6.1bn by 2029/30 and it will now grow by an average of 1.2 per cent a year above inflation, down from the 1.3 per cent forecast at the time of the budget.

However, think tanks urged the Government not to forget regional inequalities in public spending going forward.

Zoë Billingham, director of IPPR North said: “The world is changing – international instability has forced the government to make stark choices at the UK’s spring statement. Who pays the price of increasing costs is critical.

“One thing hasn’t changed: regional inequality. Public spending remains skewed - London gets £2,747 more per person than the North.

“And history tells us that when spending cuts come, they are not felt evenly across the country: the North too often takes the hardest hit.

“These are inequalities that have led to poorer health outcomes for people in northern regions.

“It is no accident that the region with the highest percentage of people in need of our social security safety net – whether this is because they are disabled or on low incomes – is the north east of England.”

Ms Billingham urged Ms Reeves to look a “fair tax options”, such as an additional tax on gambling company profits or on capital gains, “to ease fiscal pressure without deepening inequality”.