Chancellor Rachel Reeves used her spring statement to argue that her economic policies are working and that household finances are set to improve following the recent cost of living crisis. She claimed that by the next general election, the average household will be over £1,000 a year better off. However, experts warn that the new forecasts may already be out of date due to recent global events, including conflict in the Middle East. The £1,000 figure comes from a comparison of the average disposable income in the last year of the previous government (£25,600) and the projected figure for the final year of the current parliament (£26,685). Officially, this is called “real household disposable income,” which is the money people have left after paying taxes, adjusted for inflation. The Office for Budget Responsibility (OBR) predicts this income will grow by 0.6%-0.9% annually between 2026 and 2030, a modest increase compared with previous decades. One reason for slower progress is the government’s decision to freeze income tax thresholds until 2030-31. This creates “fiscal drag,” where people move into higher tax brackets as their wages rise. Inflation is expected to remain near the 2% target over the next five years, down from over 11% during the peak of the cost of living crisis, which had sparked hopes for further interest rate cuts. But the outbreak of the Iran conflict has pushed energy prices up, raising concerns about another surge in household costs. Reeves highlighted recent interest rate cuts, saying someone taking out a two-year fixed mortgage now could save more than £1,300 a year compared with rates in June 2024. The comparison uses a £215,000 loan over 29 years, showing rates fell from 4.97% to 4.07%. The Bank of England sets interest rates independently, and after six cuts since the 2024 election, the base rate stands at 3.75%. Hopes for another cut in March have dimmed to about a 30% chance due to the crisis in the Middle East. Mortgage rates remain slightly lower than last year, with a current two-year fixed deal averaging 4.83% and a five-year fix at 4.95%. The OBR predicts rates will rise from 4.1% this year to 4.5% by 2027-2030, though these numbers predate the recent global conflict. House prices are expected to grow by 2.4%-2.9% annually over the same period. On energy, the government has pledged a £150 reduction in average household bills, and Ofgem’s price cap is set to fall 7% in April to £1,641 for a typical dual-fuel household. Analysts warn that any sustained rise in wholesale gas prices could push bills close to £2,500 by July. The UK’s dependence on global gas markets means international price spikes directly affect domestic costs. Other household expenses are also set to rise. Water bills in England and Wales will increase by an average of £33 per year from April, while petrol prices are climbing, with oil trading around $70 per barrel. Analysts warn that if oil reaches $80-$100 per barrel, forecourt prices could rise to 136-150p per litre. The OBR also revised economic growth forecasts down to 1.1% from 1.4% this year and predicts unemployment will rise to 5.3%, driven by new entrants struggling to find work. Dan Coatsworth of AJ Bell said the UK economy remains “stuck in the mud,” with weak job prospects and limited consumer relief in the short term. Sustained oil price spikes could also stall further interest rate cuts, forcing the Bank of England to reconsider its policy path. Reeves’s forecasts, while optimistic, face significant risks from global conflicts and trade pressures, which remain “elephants in the room” for the UK economy.