UK economy to grow by 0.8% in 2024
The OBR says the UK economy is set to grow more than expected over the next two years as it rebounds from recession
But it predicted growth would ease back earlier than previously forecast in the longer-term.
New economic predictions by the Office for Budget Responsibility (OBR) also showed that UK inflation is set to drop below the Government’s 2% target rate within a “few months” after interest rate hikes by the Bank of England.
It also warned that the slowdown in inflation could be knocked off course by disruption in the Middle East and surge by as much as 7% in a worst-case scenario.
It came as the Chancellor Jeremy Hunt announced a spring budget which included further cuts to National Insurance in a bid for public support ahead of planned general election later this year.
The OBR said this would be partly financed by some reductions to spending as well as a fall in his fiscal headroom – the state’s buffer in order to meet fiscal rules – from around £13 billion to £8.9 billion.
Mr Hunt said the package would cut personal taxes to their lowest level for almost 50 years.
However, the OBR said the tax burden is still set to rise to its highest level since 1948, amid forecasts it will represent 37.1% of GDP (gross domestic product) within the next five years.
The Chancellor said in Parliament on Wednesday that the Office for Budget Responsibility (OBR) has estimated that UK GDP will grow 0.8% this year.
In November, the official forecaster had previously predicted growth of 0.7%.
Economists had widely expected forecasts would in fact be downgraded, with a consensus of experts predicting a 0.4% increase.
It comes after sluggish growth last year, when the economy grew by 0.1% after a recession in the second half of the year. It had been expected to grow by 0.6%.
The OBR also upgraded its growth forecast for next year, increasing it from 1.4% to 1.9%.
It kept its growth prediction the same for 2026 but slightly downgraded its 2027 forecast from 2% to 1.8%.
Meanwhile, the forecaster also predicted that inflation would fall quicker than it previously predicted, having eased back sharply in recent months.
Interest rate rises by the Bank of England – which took it to a 15-year high of 5.25% – have helped to quash inflationary pressure.
The OBR said it expects CPI (Consumer Price Index) inflation to average 2.2% this year, down from a previous forecast of 3.6%.
However, it also warned that this could be scuppered by continued tensions in the Middle East and any potential impact to energy prices.
A Middle East-driven energy price shock could cause inflation to shoot as high as 7%, the forecast said.
Jeremy Hunt also said the OBR had predicted that Government borrowing was set to reduce quicker than expected.
State borrowing is set to fall from 4.2% of GDP this year to below the 3% target in 2025/26, three years ahead of previously thought.
Published: by Radio NewsHub