THE economy will boom this year and next, according to fresh forecasts today from the Office for Budget Responsibility.
But it warned supply chain issues remain problematic.
In its executive summary, the OBR said: “Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains. These can be expected to hold back output growth in the coming quarters, while raising prices and putting pressure on wages.”
Chancellor Rishi Sunak said in his Budget speech today the financial watchdog had increased its forecast for the rise in GDP this year from 4% to 6.5%. That represents a strong bounce-back from the pandemic.
In 2022, the economy will grow another 6%. The economy will return to its pre-Covid level at the turn of this year – earlier than previously forecast.
The bad news is inflation is set to remains high. Sunak said the OBR expects inflation to average 4% over the next year.
The chancellor backs the Bank of England to keep inflation under control. “They have a strong record in doing so,” he said.
The OBR is less optimistic about the years after 2022, when it predicts the economy will grow at 2.1%, 1.3% and 1.6%. Those forecasts are highly vulnerable to events in the future.
The Chancellor said: “In a period of global uncertainty, you need to work hard to maintain a strong economy and be responsible with public finances – and that is what we’re doing. I’m grateful to the OBR for their work, and I’m pleased to say they now expect our recovery to be quicker.”
James Antwis, analyst at HSBC Asset Management, said: “The Chancellor is moving away from big deficits and toward fiscal discipline at a time when UK GDP remains below its pre-pandemic trend. The Bank of England appears to be set for a rate rise before year-end. However, the combination of higher rates and premature fiscal tightening could jeopardise the recovery and this means that today’s Budget should provide food for thought for the MPC ahead of next week’s policy meeting, and throws doubt on whether the Bank can raise rates as quickly as markets are currently pricing.”
