Rishi Sunak Warns Inflation Will Average 4% Next Year, But Growth Could Rise Up To 6.5%
Chancellor Rishi Sunak has warned that price rises will continue, with inflation expected to average at 4% next year.
Rishi Sunak began his Budget speech by drawing attention to the inflationary pressures facing the UK as the economy comes out of the pandemic, which he believed would take "months to ease".
He said the independent forecaster the Office for Budget Responsibility (OBR) is predicting that the rate of CPI, from which inflation is measured, will rise from its current rate of 3.1% to 4% next year.
But he also announced that the expected rate of growth in the economy has been raised from 4% to 6.5% this year, giving the Treasury more breathing space to spend money.
Sunak told MPs inflation was rising because "demand for goods has increased more quickly than supply chains can meet" as economies around the world reopen.
He said: "In the year to September, the global wholesale price of oil, coal and gas combined, has more than doubled. The pressures caused by supply chains and energy prices will take months to ease.
"It would be irresponsible for anyone to pretend that we can solve this overnight. I am in regular communication with finance ministers around the world and it's clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own."
He said the Budget will offer "further support for working families" and the government's fiscal policy will "keep in mind the need to control inflation”.
In a hint that he was abandoning the previous 2% inflation target, he added: "I have written to the Governor of the Bank of England today to reaffirm their remit to achieve low and stable inflation.”
The Chancellor also said the OBR forecasts for the next few years are that economic growth for 2021/22 is 6.5%, then 6% the following year, before falling to 2.1% in 2022/23.
Sunak believed that unemployment is set to peak at 5.2%, lower than the 12% figure previously suggested, and the long-term economic scarring forecast has been revised down from 3% to 2%.
Leading economist Paul Johnson, director of the Institute for Fiscal Studies, said we should be "relieved" if it can reach 2%.
“This will give Chancellor serious room for manoeuvre. Don't forget the 2008/09 crisis hit the economy by 10% permanently," he tweeted.
Sunak also said borrowing as a percentage of GDP is forecast to fall in the coming years, as he pledged to try and balance the UK’s finances.
It is currently at 7.9% this year, but is expected to fall to 3.3% next year, then 2.4%, 1.7%, 1.7% again, and 1.5% in the following years.
But with speculation mounting the Bank of England may act as soon as next month to control inflation, the Chancellor warned even a 1% increase in interest rates would cost the country £23 billion in debt payments.
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