The United Kingdom’s economy is set to experience slower growth than previously anticipated over the next two years, with inflation persisting longer than expected, according to the Office for Budget Responsibility (OBR). The independent government forecaster has also indicated that living standards in the UK are unlikely to revert to pre-pandemic levels until the fiscal year 2027-28.
This forecast comes amidst the Chancellor’s announcement of tax cuts and an increase in benefits in the Autumn Statement. The Labour party has criticized these measures, attributing the current economic challenges to “Tory economic recklessness.”
The OBR’s latest report shows a modification in its earlier predictions, now estimating a growth of 0.6% for this year, which is an improvement from its previous forecast of a recession and economic contraction. However, the growth outlook for 2024 and 2025 has been downgraded to 0.7% and 1.4%, respectively, from the earlier projections of 1.8% and 2.5%.
The revised forecasts reflect the UK economy’s resilience to the impacts of the pandemic and the energy crisis but also acknowledge the prolonged nature of inflation and higher interest rates than initially anticipated in March. Inflation, currently at 4.6%, is expected to decrease to 2.8% by the end of 2024 and achieve the Bank of England’s target of 2% in 2025, contrary to earlier predictions of surpassing the target next year.
Moreover, the OBR forecasts a 3.5% decline in the UK’s living standards by 2024-25 compared to pre-pandemic levels, with a subsequent return to normal in the following years. This reduction in living standards is anticipated to be the most significant since the Office for National Statistics began its records in the 1950s.
The UK’s economic challenges are attributed to high inflation, increasing interest rates, and subdued consumer demand, collectively impacting the nation’s economic growth trajectory.
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