By Laurie Laird
LONDON (MaceNews) – The UK economy – already lagging its developed-world peers – will recover more slowly than expected, according to updated forecasts released on Wednesday.
Output will not regain its pre-pandemic level until the final quarter of 2022, according to UK’s top finance official, Chancellor Rishi Sunak, delivering his spending statement to parliament. “The economic emergency has only just begun,” said Sunak, citing new forecasts calculated by the independent Office for Budget Responsibility.
Forecasts released less than a month ago by the Bank of England predicted a return to pre-pandemic activity by the first quarter of 2022, but a number of central bank officials have suggested downward revisions to the Bank’s forecasts in recent days. The Bank predicted an 11% contraction this year, largely in line with the latest OBR data, but the OBR sees output rebounding by just 6.6% in 2021, below the Bank’s forecast of 7.25%. Over 2021, the OBR forecast growth of just 2.3%, well below last month’s BoE prediction of 6.25%.
The UK was already experiencing a more sluggish rebound than other developed economies. Output stood 9.7% below pre-pandemic levels at the end of the third quarter, despite a 15.5% jump between July and September. The U.S. was nursing a 3.5% shortfall at the end of September, while eurozone output hovered some 4.3% below its level at the end of last year.
However, the OBR was slightly more optimistic about employment, predicting joblessness to peak at 7.5% next year, below the 7.75% forecast by the Bank of England, compared to 4.8% at the end of September. Bank of England officials have queried whether the headline number may be underestimating the true level of joblessness in the UK.
Chancellor Sunak forecast a surge in borrowing to £394 billion for the fiscal year ending in March, “the highest in peacetime history.” Borrowing hit £215 billion in the year to October, taking outstanding debt to 100.8% of gross domestic product. Sunak sees the debt ratio ending the year at 91.9% of GDP, partially reflecting the reflected the expected decline in output over the fourth quarter of the year.
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Contact this reporter: laurie@macenews.com.
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