The latest economic growth forecast from the Office for Budget Responsibility (OBR) forecasts negative GDP growth in the UK in 2023, a deeper decline that they previously anticipated.
The figures were revealed as part of chancellor Jeremy Hunt’s Autumn Statement.
The forecast is now for the UK economy to decline by 1.4 per cent in 2023, a sharp downward revision from the forecast, made in March, which was for economic growth of 1.8 per cent.
While the expectation of many was that an economic downturn next year would occur, for it to be deep and long-lasting enough to mean a full calendar year of negative growth is different.
In contrast, the GDP growth rate was actually revised upwards for this year, to 4.2 per cent, from the previous 3.8 per cent.
This may reflect the energy price subsidy scheme, which was not announced until September, so any positive impact of this was not included when the previous GDP estimates for 2022 were calculated in March.
The Autumn Statement confirmed a variation of the scheme will continue in 2023, though it will be means tested, with many households receiving nothing, something which negatively impacts the level of demand in the economy, relative to the level of demand in 2022, when all households received an energy price subsidy.
The expectation is that economic growth will be 1.3 per cent in 2024, a downward revision when compared with the previous 2.1 per cent.
Paul Johnson, director of the Institute for Fiscal Studies (IFS) said the tax increases announced in the Autumn Statement today mean the tax take accounts for the largest proportion of GDP for 75 years.
Marcus Brookes, chief investment officer at Quilter Investors, said: “Today’s Autumn Statement has painted a bleak picture for the UK with a black hole of £54bn being plugged with a mixture of spending cuts and tax rises.
"We have come a long way since the mini budget of just eight weeks ago when the Office for Budget Responsibility was cast to the side-lines. It has equally produced a glib outlook for a UK economy that is already in recession.
"The OBR has forecast peak inflation in 2022 with slow moderation going forward. It is, however, a lagging indicator and the economy will continue to slow in 2023.”
In terms of what this means for markets, he said: “Markets originally reacted well to the steady hand of Jeremy Hunt. They will continue to give him the benefit of the doubt and see the impact of this plan, however, there is also a chance that they see this as an overcorrection and that the measures could stifle what economic growth was present.
"The government will be hoping that these measures are merely temporary in order to stabilise the ship ahead of an election in just two years’ time.”
Brookes also believes the OBR forecasts today mean interest rates may not need to rise to the heights being forecast by the market.
He said: “Hunt made clear that fiscal and monetary policy must work together. However, given interest rate expectations have moderated of late and economic growth turning negative, and remaining sluggish after getting back to positive territory in 2024, the Bank of England may need to pause or pivot in monetary policy sooner than we may have previously expected. Monetary and fiscal policy will need to adapt quickly or find themselves out of lockstep in 2023.”
david.thorpe@ft.com
