'2023 is going to be a very difficult year', OBR warns UK government

The British economy will turn corner in 2024, says Office for Budget Responsibility

From left, Richard Hughes, Prof David Miles and Andy King from the Office of Budget Responsibility. PA
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Next year is going to be "very difficult” for households as bills continue to rise, the official UK economic forecaster has warned MPs.

MPs were given the alert by Office for Budget Responsibility committee member David Miles days after the agency forecast that the UK will be in recession for more than a year.

The effects of rising interest rates and continued inflation will cause pressure next year, but they are predicted to turn a corner moving into 2024, Mr Miles said.

“2023 is going to be a very difficult year, very likely, but the years after it will not be quite as bad,” the economist told the Treasury committee.

But the agency's latest economic forecasts still appear more optimistic than those revealed by the Bank of England this month.

OBR chairman Richard Hughes said its longer-term growth projections were more positive as interest rate expectations and energy price futures declined between the two forecasts.

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The OBR also said it was predicting that more people would use their savings to support spending habits, despite continued pressure on the cost of living.

Mr Hughes also told MPs on the committee that governments should not make fiscal decisions without an “up-to-date economic outlook”, after the economic fallout of former prime minister Liz Truss’s mini-budget.

Ms Truss and former chancellor Kwasi Kwarteng came under fierce scrutiny in September after they announced tax cuts and spending measures without economic forecasts.

The pair told Mr Hughes on September 7 that they would not seek economic forecasts for a fiscal announcement on September 23.

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However, concerns over the unfunded nature of the fiscal announcement and a lack of clarity over the economic outlook caused the pound to slide to a record low against the US dollar.

Ultimately, the economic turmoil contributed to the short tenure of the Truss government, with the spending plans largely reversed by new chancellor Jeremy Hunt.

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“The committee in its own reports has commented on the growing tendency in UK fiscal policy making for major policy announcements to happen without forecasts," Mr Hughes said on Tuesday.

“Good practice as defined by anyone, not just us but international institutions, would say you shouldn’t make fiscal decisions without them being informed by an up-to-date view of the economic outlook.”

Updated: November 22, 2022, 11:31 PM
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