The United Kingdom is set to increase its defense budget while simultaneously reducing social welfare spending due to the country's economic slowdown.

On Wednesday, Chancellor Rachel Reeves presented a budget adjustment in Parliament to address the "drastic increase" in global uncertainty and the significant reduction in the nation's growth forecasts for 2025.

Reeves noted that the landscape has shifted dramatically since autumn, stating, "Europe now faces a generational challenge to its collective security." She highlighted the slowdown in growth among key trading partners and rising financing costs across advanced economies.

The planned increase in defense spending is aimed at reaching up to 2.5% of GDP by April 2027, with the intention to boost it to 3% in the next parliamentary term, depending on economic and fiscal conditions.

To facilitate this, the Chancellor announced an additional 2.635 billion euros in funding for the Ministry of Defense for the upcoming year.

Reeves stated that increasing defense spending would drive prosperity through new jobs, skills, and opportunities across the nation.

Reeves also confirmed that the government would implement reforms to disability and incapacity benefits, expected to save 5.747 billion euros from social welfare expenditure by 2029-30. This is part of an effort to make the welfare system fiscally sustainable.

She pointed out that without government intervention, the current budget would show a deficit of 4.910 billion euros for 2029-30.

The Office for Budget Responsibility (OBR) has confirmed that the government is on track to meet its fiscal and investment targets, with the current budget projected to yield a surplus of 11.854 billion euros in the target year, restoring fiscal wiggle room established in last autumn's budget.

Acknowledging the impact of global challenges, Reeves stated that the UK, as an open trading economy, is "not immune to these challenges." This statement follows the OBR's halving of its forecast for UK GDP growth in 2025, revising it down from 2% to 1%.

Nevertheless, the OBR anticipates growth will accelerate to 1.9% in 2026, with revised growth projections for subsequent years estimating a cumulative growth of 9.4% from the fourth quarter of 2024 to the first quarter of 2030, compared to a previous estimate of 9.2% in October.

Despite the changing world, the Chancellor asserted that the economy is expected to grow faster than anticipated in last autumn's budget, starting from 2026 onwards.

Reeves noted that measures taken since last autumn would allow the government to meet fiscal standards two years earlier than planned.

Additionally, she indicated that the improved GDP estimate for 2029-30 would contribute 6.800 billion pounds to the UK economy, reducing the need for borrowing by 4.071 billion euros for 2029-30.

In the wake of the announcements regarding cuts in public spending, the London stock market saw an increase of 0.30%.

The FTSE-100 index gained 25.79 points, closing at 8,689.59, while the FTSE-250 index rose by 0.29% to 20,039.20. Noteworthy performers included Shell, which increased by 2.39%, followed by clothing and footwear retailer Next with a 1.94% rise, and engineering service provider Babcock International Group, up by 1.84%.

Conversely, Admiral, an insurance company, fell by 2.56%, Smiths, an engineering firm, dropped by 2.28%, and asset management company Schroders lost 1.99%.