Philip Hammond is poised to deliver the spring statement on Wednesday against a backdrop of mounting political turmoil over Brexit, with increasing risks to the UK economy from a no-deal exit.

No major tax and spending changes are expected, as the main budget is now held in the autumn rather than the spring, but there will be a key update on the state of the economy from the Office for Budget Responsibility.

Here are four things to watch out for.

Brexit

Britain’s departure from the EU will undoubtedly cast a long shadow over the spring statement.

Following the vote on May’s deal, the economic health check will provide Hammond an opportunity to argue that leaving without a transitional agreement would damage growth and shatter the public finances.

The Bank of England has already said the worst-case no-deal scenario could spark an immediate recession worse than the financial crisis, while the government has warned growth could be as much as 9% lower in the long run.

Dean Turner, UK economist at UBS Wealth Management, said: “The chancellor is unlikely to pull any rabbits out of the hat this time round, but we are likely to see a mix of positive news, caution on the outlook and a warning to MPs about the risks of a no-deal Brexit.”

Growth

The bad news on Wednesday is likely to come from a downgrade in the OBR’s growth figures compared with the estimates made in October, following a weaker conclusion to the year for the UK economy and disappointing start to 2019. Mounting Brexit uncertainty has weighed on the economy, while slowing global demand has also had an impact.

The OBR had forecast growth of 1.6% for 2019, however the Bank of England has since said that growth could drop to 1.2% given the weaker levels of output seen over recent months.

Conditional on a smooth Brexit, the GDP growth forecasts for next year may however be revised much higher. The OBR had forecast growth of 1.4% for 2020, although City economists believe it could be revised as high as 1.6%.

Hammond is likely however to point to stronger growth readings, including a better than expected monthly GDP growth figure for January. He is also likely to outline other bright spots, including record levels of employment and the lowest rate of unemployment since the mid 1970s. Wages are also rising the fastest in a decade.

Public finances

Another bright spot for the chancellor is expected to be the stronger performance in the public finances over recent months. The budget deficit – the difference between government spending and tax income – for 2018-19 so far has dropped to the lowest level since 2001.

A stronger than expected rise in self-assessed income tax receipts in January helped bring down government borrowing to £21.2bn for the financial year to date, with the year so far the best since 2001.

The latest snapshot means the government is set to meet the £25.5bn target given by the OBR in October. Economists believe the tax and spending watchdog could cut its borrowing targets again on Wednesday, handing the chancellor greater room to raise spending in future.

Brexit would however probably reverse some of the progress, while changes to the way student loans are accounted for could further damage the public finances when they are made later this year.

Hammond has previously said £15.4bn has been held in reserve to fight an economic slump sparked by Brexit, which could be spent on public services instead if a no-deal Brexit can be avoided. He will likely provide an update on these funds.

Ending austerity

Hammond will come under growing pressure this year to meet Theresa May’s pledge to bring austerity to an end. The spring statement is unlikely to provide the platform for that promise to be delivered in full but he may attempt to signal the direction of travel.

A full spending review is scheduled for the summer to outline the funds available for government departments from 2020 onwards, although the chancellor will likely say that much depends on the Brexit outcome.

Observers are sceptical that the chancellor will end austerity. The Institute for Fiscal Studies has said he must find an extra £5bn a year to achieve the aim. The government was also criticised for setting aside only £1.6bn to spend on poorer local communities under the stronger towns fund, the details of which may also feature on Wednesday.

Some previously announced changes due to take effect from 1 April will mean no end to austerity in the short-term, barring any last-minute changes. The benefit freeze is set to continue for a fourth year, while tax cuts that will help richer households most are due to come into effect.