Budget 2020: Growth forecasts ‘incredibly grim and far too optimistic’
The forecasts produced yesterday by the UK’s Budget watchdog managed to be both “incredibly grim and far too optimistic,” according to a leading think tank.
The Resolution Foundation warned that the Office for Budget Responsibility’s (OBR) growth writedown – which did not even factor in the full effect of coronavirus – would make households in the UK on average £575 a year worse off than they otherwise would have been.
Chancellor Rishi Sunak yesterday unveiled the biggest Budget in almost 30 years. He turned on the spending taps to tackle the economic fallout of coronavirus and to invest in the UK’s infrastructure and regions.
The OBR said the Budget would add £125bn to public sector net debt by 2024/25, and take the UK’s total debt pile to £2 trillion for the first time.
“A large appetite for increasing public spending has been combined with far less appetite to raise taxes,” the Resolution Foundation said today in its analysis of the Budget.
“The result is a Conservative chancellor now planning a bigger state than was seen under Tony Blair, financed through higher borrowing than Gordon Brown oversaw as chancellor. The new Conservatism is certainly far from fiscally conservative.”
The Foundation highlighted that the OBR’s forecasts produced for the Budget are likely to prove far too optimistic, given the disruption the economy faces from measures to contain coronavirus.
Although the OBR said GDP would grow 1.1 per cent this year and 1.8 per cent next, the OECD has said it expects 0.8 per cent growth in both years.
The watchdog’s pre-pandemic forecast for GDP to grow by 7.3 per cent over the next five years “would already be their second weakest OBR forecast on record,” the Resolution Foundation said.
Britain’s exit from the EU’s single market and the resultant lower immigration was a key reason the OBR downgraded its forecasts at the Budget.
Resolution Foundation chief executive Torsten Bell said he welcomed the combative approach to coronavirus, however. It “stands in welcome contrast to the chaotic response witnessed overnight in the US,” he said, after President Donald Trump cancelled all flights from the EU to the States.
Yet he added: “There are few easier Budgets to deliver than the ones giving away lots of money. But if this growth outlook proves remotely accurate there are more difficult days, and more difficult budgets, ahead for the chancellor.”