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Jeremy Hunt says Rishi Sunak’s three key economic promises have been met in his Budget, as official figures reveal inflation is expected to fall below 2% this spring. insisted.
The Prime Minister said a faster-than-expected fall in inflation in official forecasts, along with a reduction in debt and an expected rise in economic growth, meant the government had got the UK economy back on track. .
However, the Office for Budget Responsibility (OBR) has warned that the UK’s outlook remains fraught with risks after the country slipped into recession in the second half of last year. These include a potential inflationary “shock” that could cause prices to rise again in the event of conflict in the Middle East. In this scenario, the spread in the East will be closer to 6% next year.
The watchdog group maintained that the medium-term outlook “remains bleak.”
The OBR’s growth forecast has improved since its Autumn Statement in November, with the economy expected to grow by 0.8% this year and 1.9% next year, 0.5% higher than its previous forecast, despite a technical recession in 2023. I predicted it. autumn.
GDP is expected to grow by 2.2% in 2026, 1.8% in 2027, and 1.7% the following year.
However, the OBR warned that GDP per capita is expected to decline over the next four years and be lower than before the pandemic in 2024/25. This is because the UK’s population size is expected to increase, partly due to higher net immigration and higher levels of economic inactivity than previously predicted.
Net immigration is expected to settle at 315,000 a year, an upward revision from 245,000 in the autumn statement, undermining the government’s claims that it is on top of immigration.
Mr Hunt also said government debt was falling as a percentage of GDP, which was one of the prime minister’s pre-election promises.
However, while debt as a share of GDP is falling, underlying debt, excluding Bank of England debt, is expected to peak at 93.2% in 2026-27 and 2027-28, before falling in the following year. The OBR said there are.
According to fact-checking website Full Fact, the debt is “not currently decreasing, but is projected to decrease.”
It added: “Government fiscal rules require that the underlying debt must fall as a percentage of GDP between the fourth and fifth years of the forecast period.
“According to the OBR, net basic public sector debt, excluding Bank of England debt, a measure used by governments for targeting, currently peaks in 2026-27 and 2027-28, and then It is expected to decline.”
Living standards are expected to recover faster than the OBR forecast in November, growing by around 1% a year on average, faster than forecast, and real household disposable income per capita is expected to reach its pre-pandemic peak by 2025-26. It is expected that he will recover. Two years earlier than expected in November.
The OBR added: “If the Middle East conflict escalates or domestic wage pressures do not subside as quickly as we expect, inflation could rebound and remain high for an extended period.”
“There is also uncertainty regarding some of the key drivers of economic growth in the medium term, including net migration, labor market participation and productivity growth. very sensitive to.”
The OBR also revealed that net immigration will effectively fund the Prime Minister’s National Insurance cuts.
The net fiscal impact of around 350,000 net immigrants is an increase of £300m in specific fees and charges paid by these additional immigrants over 2028-2029, and an increase of £6.2 in general tax revenue paid by these additional immigrants. Stated. Same year bn.
The OBR said welfare spending would remain largely unchanged as net immigration increased, with few new immigrants eligible for benefits by 2028-29.