The government’s spending watchdog has warned the country faces a billion-pound hole ahead of the March budget.
In his autumn statement, the Chancellor had announced that the Office for Budgetary Responsibility had forecast world economic growth to fall to 1.4% this year before rising again in three years, to 1.3%, 2.6% and then 2.7%.
But in a new Treasury filing, seen by The Times, the OBR privately warned Jeremy Hunt to expect a bleaker economic future. He plans to revise growth forecasts down to between 0.2 and 0.5 percent.
The sources said the review was necessary due to the weak economy and tight labor market.
The revelation came as senior Conservative MPs were privately calling on the chancellor to cut taxes after a year in which households and businesses shelled out 10 percent more than usual.
Britons have paid an average of £821 more to the Treasury this fiscal year, according to HM Revenue and Customs statistics analyzed for the Telegraph. Despite the Treasury raising £553bn between April and December, forecasters warned that the government actually has no headroom for spending announcements and may have to tighten the portfolio more than expected on March 15.
“There seems to be a view out there that Hunt suddenly has all this money to gamble with tax cuts,” a government source told the Times. “But that’s not the view internally. The OBR figures suggest that the medium-term outlook for economic growth will actually be worse than in November.”
The Telegraph reported last week that falling fuel prices and cheaper clothing helped reduce inflation for the second month in a row, while consumer prices grew 10.5% in December 2022, continuing the slowdown since a maximum of 41 years in October.
But, as economist Roger Bootle explained this week, the pressure didn’t fade just because the stress of rising inflation seemed to have peaked.
“In fact, while inflation is ahead of wage increases, real wages continue to fall,” Bootle wrote.
Recent advice to Mr. Hunt reflects that sentiment. Treasury officials reportedly told him that underlying inflation, including rising wages, could cause interest rates to rise more than expected.
The result, if the new forecasts are correct? A “longer recession and a weaker recovery”.