The Office for Budget Responsibility has released its fiscal outlook after Reeves’ gruelling budget. The figures don’t make happy reading for fans of economic growth. Guido gives you its main, dire, points:
- A weaker economy in the long run. Real growth GDP is forecast to be 1.6% by the end of the parliament. “Budget policies temporarily boost output in the near term, but leave GDP largely unchanged in five years”.
- The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents.
- Net fiscal loosening would crowd out some private investment in an economy with little spare capacity.
- Spending increases every year, totalling £180 billion by the end of the parliament.
- Public spending is £83 billion a year higher than forecast in March and settles at 44% of GDP in 2029-30, 5% higher than pre-pandemic.
- Tax as a share of GDP rises to its highest level on record, reaching 38% of GDP by 2027-28.
- Public sector net financial liabilities are forecast to peak at 84% of GDP in 2026-27. Though debt excluding the Bank of England rises in every year to 96% of GDP in 2029-30.
- Predicts there is only a 54% chance of the Government hitting its fiscal mandate.
- Real household disposable income per person grows just over 0.5% a year on average over our forecast. Growth is flat in 2026-27 and 2027-28 as policies shift real resources out of private incomes to devote more resources to public service provision.
- CPI Inflation to rise to 2.6% in 2025, having nearly reach the 2% target this year.
- Interest rates will be 0.25% higher.
- Mortgage rates and house prices forecast to rise.
- Average annual tax rise of £800 per employee from NICs rise.
So much for being the party for growth…
