Multi-billion pound hole discovered in Britain's finances
The government’s spending watchdog has warned the country is facing a multi-billion pound hole ahead of the Budget in March.
In his Autumn statement, the Chancellor had announced the Office for Budget Responsibility predicted global economic growth would fall by 1.4pc this year before rising again over three years, by 1.3 per cent, 2.6 per cent, and then 2.7 per cent.
But in a new submission to the Treasury, seen by The Times, the OBR has privately warned Jeremy Hunt to expect a bleaker economic future. It plans to revise growth forecasts down by between 0.2 and 0.5 per cent.
Sources said the revision was necessary due to weakness in the economy and labour-market shortages.
The revelation came as senior Conservative MPs were privately calling for the Chancellor to cut taxes after a year in which households and businesses forked out 10 per cent more than usual.
Britons have paid an average of £821 more to the Treasury this financial year, according to HM Revenue and Customs statistics analysed for the Telegraph. Despite the Exchequer taking in £553bn between April and December, forecasters reportedly warned that the government does not actually have scope for spending announcements and on March 15 may have to tighten purse strings further than previously expected.
“There seems to be a view out there that Hunt suddenly has all this money to play with for tax cuts,” one government source told the Times. “But that is not the view internally. The OBR figures suggest that the prospects for medium-term economic growth will actually be worse than they were in November."
The Telegraph reported last week falling fuel prices and cheaper clothing helped bring inflation down for the second month in a row while consumer prices grew at 10.5pc in December 2022, continuing the slowdown from a 41-year high in October.
But, as economist Roger Bootle explained this week, the pressure was not off just because the strain from surging inflation looked to be past its peak.
“Indeed, while inflation is ahead of pay rises then real pay is still falling,” Mr Bootle wrote.
Recent advice to Mr Hunt reflected that sentiment. He has reportedly been told by Treasury officials that underlying inflation – including pay growth – could result in interest rates being pushed higher than expected.
The result, if the new forecasts are correct? A “longer recession and a weaker recovery”.