Autumn Statement 2022: Economic Outlook

Hunt began his statement with a summary of expectations for the economy according to the Office for Budget Responsibility, which is required to publish an economic report at least twice a year.

The objective of the reports by the OBR is to summarise the UK economy, taking into account the changes made to national spending and the tax system in the accompanying Budget document. The summary of the OBR report has long been anticipated, after the lack of such a report in Kwarteng’s mini budget in September contributed to the market backlash that eventually led to his departure.

The economic forecast, released one day after the Office for National Statistics revealed inflation (excluding owner occupier housing costs) had hit 11.1% in the year to September – the highest level since October 1981 – proved to be sombre listening. The UK is currently in a recession, according to the OBR, which will last “just over a year from the third quarter of 2022 to a peak-to-trough fall in GDP of 2%”.

In 2023, GDP is expected to fall by 1.4%. “Without the fiscal support to households and businesses provided by the energy price guarantee and other measures announced since March, we estimate that the recession would be 1.1 percentage points deeper”, the OBR wrote.

GDP will rise by 1.3%, 2.6%, and 2.7% in the following years, according to the OBR’s forecast, while the economy will recover to its pre-pandemic level in the fourth quarter of 2024 as inflation begins to fall.

Overall this year, the economy is still forecast to grow by 4.2%, however. The OBR said inflation had already peaked at a high of 11% in the current quarter and would be dropping “sharply” in 2023, dragging “below zero” in the middle of the decade, and returning to the target of 2% in 2027.

Rising prices will erode real wages and reduce living standards by 7% over the two financial years to 2023/24, wiping out the previous eight years’ growth, according to the OBR. Meanwhile, unemployment will rise by 505,000 from 3.5% to a peak of 4.9% in the third quarter, according to the report.

On public debt, Hunt confirmed two new fiscal rules, dictating that underlying debt must fall as a percentage of GDP by the fifth year of a rolling fiveyear period, and be below 3% of GDP in the same year. As such, Government plans will borrow a forecasted 7.1% of GDP in 2022, 5.5% in 2023, and 2.4% in 2027/28.

However, the OBR noted that “the Government’s two legislated fiscal targets to balance the current budget and get underlying debt falling in 2025-26 are on course to be missed by £8.7 billion and £11.4 billion respectively”.

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