Chancellor Rishi Sunak’s Spring Statement offered up a handful of welcome announcements. But it didn’t fundamentally alter the fact that the outlook for the UK economy is darkening, with three headwinds likely to weigh on growth this year.

First, the cost-of-living squeeze caused by higher inflation is set to continue.

Mr Sunak announced a few measures designed to ease the pain felt by households – most notably the 12-month cut in fuel duty of 5p per litre.

But the context is a huge increase in global energy prices. The average price of a litre of unleaded fuel in the UK has already increased by about 20p since the start of this year, and nearly 50p since the start of 2021.

Inflation overall is already more than six per cent, the highest in nearly thirty years, and it is likely to climb above 8% in April when Ofgem’s utility price cap increases. Government support will offset only a fraction of that increase.

With wages failing to keep pace with prices, the OBR estimates that real household disposable income per person will fall by 2.2% in 2022-23 – the worst in a single fiscal year since records began in the mid-1950s.

Second, the balance of government spending and taxation is becoming less supportive. Admittedly, Mr Sunak tried to cast himself as a tax cutter, raising the national insurance threshold by £3,000, and announcing a 1 percentage point reduction in the basic rate of income tax from 2024.

But as ever, it makes more sense to focus on the overall balance rather than specific measures.

As the Chancellor gave with one hand, he continued to take away with the other. National insurance contributions are still set to rise, and other taxes (like corporation tax) are going up too. Despite the tax-cutting rhetoric, taxes as a share of GDP are on course to rise through levels last seen in the late 1960s.

The bigger picture is that a significant tightening of fiscal policy is still underway, and that the Chancellor is taking a cautious approach.

He opted to bank, rather than spend, most of the windfall he received from stronger-than-expected public finances data recently, aiming to meet his debt and deficit targets with plenty of room to spare.

Over the next couple of tax years, the fiscal stance will tighten by around 4% of GDP, dragging on growth.

Third, interest rates are still likely to rise further in the near term, especially given the inflation data released the morning of the Chancellor’s address.

The Bank of England did sound a little more cautious at its meeting last week, worrying about the growth outlook following the invasion of Ukraine. But policymakers still believed that further rate increases were warranted.

These headwinds mean that we remain cautious about small-cap UK equities, which are particularly exposed to the performance of the domestic economy and have underperformed recently.

But it’s a very different story when it comes to the largest listed firms in the UK. Most of them are global companies – collectively FTSE 350 firms earn only about a quarter of their revenues in the UK, and the figure for the FTSE 100 is even lower. As a result, they have little direct exposure to the fortunes of the UK economy.

The sectoral composition of the UK stock market – with relatively high weights in defensive sectors like consumer staples and in commodities – may also be an advantage as the global economy loses more steam, and the invasion of Ukraine means that the risks of further spikes in commodity prices remain high.

Oliver Jones is an asset allocation strategist at Rathbones