- The Office for Budget Responsibility (OBR) forecasts that the UK is already out of the technical recession it slipped into in the second half of 2023. It upgraded its forecasts for GDP growth this year and over the next couple of years, on the back of lower inflation and a growing population. The OBR sees inflation dropping below the Bank of England’s 2.0% target in the coming months and staying around this level for the next three years. That and subsequent interest rate cuts are forecast to deliver a strong recovery, with UK growth accelerating to an above-trend rate by the end of this year and maintaining that performance over the medium term.
- Compared to others' forecasts for the UK economy, these figures are on the optimistic side and predicated, partly, on quite high levels of immigration.
- Despite the optimistic outlook, real incomes are expected to take quite some time to rise back up to their pre-pandemic levels.
- Meanwhile, public debt is at its highest level in 60 years, after successive stages of fiscal easing in response to the pandemic and energy price shock in 2022. Returning debt to pre-pandemic levels will be a tough job.
- Even with the tax burden rising to its highest level since 1948 and GDP growth beating trend over the next five years, the OBR assesses the government will have to borrow to fund its spending over that period. Investing for long-term growth and delivering better public services alongside fixing the UK's public finances will be a major challenge for the next Parliament.
- Timing: the next General Election is due to take place by January 2025, however the Prime Minister may choose to call an early election.
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