The United Kingdom economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, the government’s forecaster says.
Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said.
It comes as the chancellor announced tax cuts and a rise in benefits in his Autumn Statement.
Labour said people were still paying for “Tory economic recklessness”.
The OBR, which is independent from government, publishes two sets of economic forecasts a year, which are used to predict what will happen to government finances.
These are based on its best guess about what will happen, and are subject to change.
According to the watchdog, the UK will grow by 0.6 per cent this year – considerably better than what it expected last autumn, when it predicted the economy would fall into recession and shrink.
However, it slashed its growth outlook to 0.7 per cent in 2024 and 1.4 per cent in 2025 – down from a previous forecast of 1.8 per cent and 2.5 per cent.
“The economy has proved more resilient to the shocks of the pandemic and energy crisis than we anticipated. But inflation has also been more persistent and interest rates higher than [forecast] in March,” it said.
The OBR warned that inflation – currently 4.6 per cent – will only fall to 2.8 per cent by the end of 2024, before reaching the Bank of England’s 2 per cent target in 2025.
Previously it forecast inflation would easily beat the target next year.
And it said that UK living standards, as measured by households’ real disposable income, were expected to be 3.5 per cent lower in 2024-25 than their pre-pandemic level, before returning to normal several years later.
This drop would be less sharp than previously expected, but still represent “the largest reduction in real living standards since Office for National Statistics records began in the 1950s”.
The economy has been struggling with a combination of high inflation, rising interest rates and flagging consumer demand, which is weighing on growth. (BBC)