It will see the biggest drop in living standards since records began with inflation “pushing the economy into a recession that will last just over a year,” the spending watchdog said. The decline in household spending power will be so sharp over the next two years that it will effectively wipe out the past eight years of growth as wage increases have not kept pace with inflation and interest rates. It will effectively turn the clock back to 2013, the OBR said. It also marks just the third time since the mid-1950s that there have been consecutive years of falling living standards. The last time was in the wake of the global financial crisis. The economy will contract by 2%, raising unemployment by 505,000 by the second half of 2024, the OBR said. The GDP will reach the pre-pandemic level only by the end of the same year. “The medium-term fiscal outlook has deteriorated significantly from our March forecast due to a weaker economy, higher interest rates and higher inflation,” the OBR said in its latest update on the outlook for the economy and public finances published alongside the Autumn by Jeremy Hunt. statement. While household incomes are squeezed, taxes will rise to 37.1% of GDP, their highest sustained level since the second world war. Overall, the spending watchdog said government borrowing was likely to be higher than forecast in March this year, but would fall relative to economic output from 2024-25 onwards. The OBR has been embroiled in a political firestorm over Liz Truss and Kwasi Kwarteng’s mini-budget, which went ahead in September without the watchdog releasing forecasts. She said Thursday that her forecast “was unusual in both the time it took to produce and the process that led to its publication,” in light of the turmoil. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. The omission of independent economic and borrowing forecasts sparked a sell-off in UK government debt, known as gilts, as investors felt the government had made a deliberate decision to avoid independent scrutiny of their spending plans. The pair met Richard Hughes, chairman of the OBR, in the wake of the mini-budget in a bid to cool markets. Ahead of the autumn statement, the watchdog warned: “This forecast process has been unusually uncertain, with various changes to both internal and public deadlines for forecast rounds, policy changes and publication dates.” The document he produced was also much shorter than usual and noted that there have been “five fiscal events since March”.
