3 17 November 2022 l AUTUMN STATEMENT ECONOMIC UPDATE The economic backdrop to the Autumn Statement was a challenging one, with the Chancellor confronted by a combination of over 11% inflation, recession and the need to re-establish the UK’s financial credibility. The question remains, however, whether the UK economy will fulfil the relatively optimistic growth forecasts now implicit in the projections of the Office for Budget Responsibility (OBR). The first Economic and Fiscal Outlook (EFO) of 2022 from the OBR was published on 23 March, shortly after the invasion of Ukraine. Three prime ministers, four chancellors and nearly nine months on from the beginning of Mr Putin’s ‘special military operation’, the UK’s (and much of the world’s) economic prospects have changed significantly: ■ The new OBR forecast says inflation will be 9.1% in 2022, 7.4% in 2023 and just 0.6% in 2024. Inflation is a two-edged sword for the Treasury. On one positive side it has increased the extra revenue raised by the many tax allowance freezes announced in March 2021 from the original estimate of £8 billion to £30 billion now. On the negative side it has made spending cuts more difficult for the Treasury because last year’s Spending Review set departmental budgets in cash terms, based on the low forecasts for inflation. ■ The outlook for economic growth in the short term is much lower. The OBR projected growth is −1.4% in 2023, 1.3% in 2024 and 2.6% in 2025, echoing the Bank of England’s recent forecast for a recessionary 2023. ■ Interest rates have risen faster than the OBR expected in the Spring in response to the double-digit inflation, with rates averaging more than 4% through to the end of 2025/26. ■ The combination of higher inflation, poor growth and rising interest rates was destined to hit government borrowing even before the huge costs of energy price support were added to the mix. For 2022/23, government borrowing is projected to be £177 billion, £78 billion above the level the OBR projected in March. In the coming financial year, borrowing will only come down to £140 billion – £90 billion above the March 2022 forecast.
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