The Office for Budget Responsibility now expects the UK economy to be back at pre-pandemic level by the "turn of this year”, and has revised up its forecasts for UK GDP growth in the coming years, the chancellor has said.
Delivering his Autumn Budget today (October 27), chancellor Rishi Sunak said the OBR now expects growth this year to be 6.5 per cent, ahead of the previous forecast of 4 per cent.
Estimated growth for next year is lower than forecast in March's Budget, falling from 7 per cent to 6 per cent, but has been revised upwards for 2023.
Sunak has been criticised for failing to base his economic plans on the independent body's most up-to-date figures. But the updated forecasts do contain a number of other positive revisions.
The OBR has amended its forecast of permanent economic scarring. It now expects GDP to be 2 per cent lower than its pre-crisis trend - down from a March forecast of 3 per cent, but still higher than the Bank of England's 1 per cent estimate.
Unemployment, meanwhile, is now forecast to peak at just 5.2 per cent, well below an initial crisis estimate of 12 per cent.
But Sunak acknowledged that price rises are a significant concern for consumers, with the OBR now expecting inflation to be 4 per cent on average over the next year.
This is twice the Bank of England’s mandated target of 2 per cent, and Sunak said he has written to the governor of the central bank to reiterate the long-term target is 2 per cent.
The disparity between current and expected levels of inflation and the 2 per cent target may mean the BoE raises interest rates as soon as next month.
Douglas Grant, director of Conister, a bank, said: “If the Office for Budget Responsibility’s inflation forecast of 4 per cent over the next year materialises, this will lead to both raw material and labour cost rises which will have to be passed on to the consumer.
"Otherwise, this will have a negative impact on firms’ working capital, something which is already scarce due to disrupted supply chains and the Covid-19 pandemic. “
david.thorpe@ft.com
