22 November 2023
If you are covering the OBR’s forecasts on economic growth and the Chancellor’s Autumn Statement, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“In recent budgets and fiscal events, when consulted, the Office for Budget Responsibility has been far more optimistic about the trajectory of the UK economy and inflation than the Bank of England. On inflation, today that has changed and it is now beginning to mirror the thoughts of the Central Bank. In March the OBR predicted inflation would be 0.9% by the end of 2024, yet today that forecast now stands at 2.8%. Inflation is not expected to hit the 2% target until 2025, and thus rates will likely stay ‘higher for longer’ even as economic growth stutters.
“However, the OBR continues to be a more optimistic voice compared to others on economic growth in the UK. Having avoided a technical recession to date, the forecasts now indicate sluggish growth, down from estimates in March, but growth nonetheless. But that optimism isn’t translating into strong expectations - growth forecasts have gone from 4.1% between 2023 and 2025 in the spring, to 2.7% today as growth deteriorates compared to what was expected. It is clear that interest rates are weighing on the wider economy and making up for these periods of lost growth will be difficult for the UK despite the government’s best intentions.
“This was billed as an ‘Autumn Statement for growth’ and the government is attempting to give the economy a shot in the arm. But it is questionable how effective and long lasting this growth will be. Making the ‘full expensing’ tax break for business permanent is a good first step and should provide some certainty to some companies when it comes to their own investment decision making. But where the government provides certainty with one hand, they remove it with another and we will see a long-term freeze in investment spending, all the while awaiting details on a long-term industrial and green strategy, where Labour has somewhat stolen a march on the narrative.
“With an election likely to be less than 12 months away, this Autumn Statement is much more political in nature, particularly given the economic gloom has not yet lifted from the UK. The giveaways announced today are somewhat of a gamble by the government given the state of play with price rises and economic growth. Inflation is still running at more than double the Bank of England’s target it could be there is even less headroom for giveaways in the Spring. As a result, today’s decisions are being driven much more by the polls than any fundamental improvement in the state of the UK’s long-term finances.”
