Economics – Latest official economic forecasts – your summary
03 November 2021The Office for Budget Responsibility (OBR), the government’s official economic forecaster, has issued a new Economic & Fiscal Outlook (EFO) report.
The Office for Budget Responsibility (OBR), the government’s official economic forecaster, has issued a new Economic & Fiscal Outlook (EFO) report.
The report provides a range of forecasts up to 2026-27 and is the basis for the latest Budget and Spending Review.
Key points are as follows:
Latest position:
Global recovery from COVID-19 continues, global trade is picking up (para 2.19)
The worst of pandemic seems to be over in the UK (foreword, para 1.1)
Businesses and shoppers have adjusted surprisingly quickly to COVID effects (para 1.7)
Economic recovery in 2021 was faster than expected (para 1.1)
Capacity limits are now constraining further growth (para 1.2)
Tightness in the labour market is driving wages up rapidly (para 1.8)
Supply bottlenecks are disrupting goods and energy markets (box 2.4)
Inflation pressure is strengthening (para 1.8)
Trade has been hit hard by COVID and by EU Exit, especially trade with the EU (box 2.5)
Public borrowing remains very high, but is lower than was expected in March (para 1.17)
The Budget and Spending Review plan for a large increase in tax and spending (paras 1.4 and 1.21)
Forecasts
Economic growth is expected to slow (para 1.10)
Consumer spending is expected to return to the normal level by the end of 2021 (para 2.55)
Household savings will drop away – the size of the £170bn “saving pile” will shrink slowly (para 2.58)
Current strong wage growth will slow steadily, returning to long-term trend (para 2.84)
CPI inflation is expected to peak at +4.4% in Q2 2022 – a higher peak than previously expected (para 1.11)
Public sector net debt will peak in the current year, then fall slowly from 2024 (table 1.3)
Comment
The strategic position is evolving rapidly, making forecasting unusually difficult.
Economic recovery from COVID-19 has emerged more quickly and more strongly than expected, creating both challenges (eg: “overheating” and inflation) and opportunities (eg: stronger-than-planned tax receipts).
The economic position described by OBR is broadly in-line with IGD’s understanding, but the OBR’s future forecast varies slightly.
OBR anticipates a fairly short “pulse” of strong inflationary pressure, followed by a return to long-term trends.
Similarly, OBR anticipates that labour pressure will ease and migrants - new and old - will come back to the UK market, allowing wage growth to settle.
IGD is slightly more pessimistic, expecting that – in the food and consumer goods market at least – supply of materials and labour will remain a problem for businesses and that inflation will therefore be more persistent.