Living Standards Will Fall And Unemployment Will Rise Despite £100bn Of Support
Jeremy Hunt outlined the government's plans for the economy and £55bn in tax rises and spending cuts (Alamy)
The Office for Budget Responsibility (OBR) has predicted that living standards will fall by 7 per cent and more than half a million more people could end up out of work, despite £100bn of government support laid out by Chancellor Jeremy Hunt in the Autumn Statement.
In an economic and fiscal outlook published to accompany Hunt's major financial statement to the Commons, the independent forecaster blamed dire global economic conditions and warned that a prolonged period of high inflation sparked by the pandemic and Russia’s invasion of Ukraine means “wiping out the previous eight years’ growth”.
They said the economy is now in a recession that will last for just over a year, which will see a 2 per cent fall in the UK’s GDP.
The OBR also predict that "unemployment rises by 505,000 from 3.5 per cent to peak at 4.9 per cent in the third quarter of 2024”.
Earlier on Thursday Hunt laid out his plans to try and repair the damaged economy through a series of "difficult decisions” on hiking taxes and cutting spending.
Predictions around inflation, which is currently at a record high of more than 11 per cent, provided some positive news. The OBR believes the rate will “drop sharply over the course of next year and is dragged below zero in the middle of the decade by falling energy and food prices”.
They said the resulting recovery in real-terms incomes for people, and therefore on consumption and investment, “sees GDP return to growth in 2024 and output recover its pre-pandemic level in the fourth quarter of that year”.
However, the OBR warned the “medium-term fiscal outlook has materially worsened since our March forecast due to a weaker economy, higher interest rates, and higher inflation”.
This has had a negative effect on government borrowing, with “higher debt interest costs from higher interest rates, with the energy-shock-driven loss of receipts, and the inflation-driven rise in welfare spending the other major factors”.
The net effect of these measures is that the OBR has increased the expected amount of borrowing relative to its forecast earlier this year by £64.2bn in 2022-23 and £39.8bn in 2023-24.
They add that the government’s policy decisions then reduce borrowing from 2024-25 onwards, but overall they report that the deficit rises from £133.3bn last year to £177.0bn this year.
This will push underlying debt “up sharply from 84.3 per cent of GDP last year to a 63-year high of 97.6 per cent in 2025-26”.
The government’s two legislated fiscal targets to balance the current budget and get underlying debt falling in 2025-26 are on course to be missed by £8.7bn and £11.4bn respectively, they add.
Paul Johnson, a leading economist from the Institute for Fiscal Studies, said the OBR's predictions were “simply staggering numbers”.
“Real Household Disposable Income per person to fall more than seven per cent over the next two years. Biggest fall on record. Taking incomes down to 2013 levels,” he added.
PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe