April 23, 2024

Jeremy Hunt says the UK economy is ‘turning a corner’

  • By Lucy Hooker
  • Business reporter, BBC News

Image source, Getty Images

The UK is about to “turn the corner on growth”, Chancellor Jeremy Hunt has said.

He pointed to upgraded growth forecasts for the next two years from the government’s official forecaster, the Office for Budget Responsibility (OBR).

The UK’s economy fell into recession at the end of last year, and the OBR warned the UK was entering a period of “stagnating output”.

Labour said output per person had not grown for two years.

Economic forecasts from independent economists had predicted significantly weaker growth than the OBR’s new upgraded outlook.

The OBR now expects the economy to grow by 0.8% this year, a rise compared to its autumn forecast of 0.7%. The forecast for 2025 has also been raised to 1.9% from 1.4%.

Mr Hunt said the UK had outperformed other major European economies.

“Since 2010 we have grown faster than Germany, France or Italy, the three largest European economies, and according to the IMF we will continue to grow faster than all three of them in the next five years as well,” he said.

However, Labour leader Sir Keir Starmer described his statement as a “statistical sleight of hand”.

“Indeed, in per capita terms, our economy has not grown since the first quarter of 2022, the longest period of stagnation Britain has seen since 1955.”

The eurozone, France, Canada, Italy and the US have all had stronger growth since the start of the pandemic than the UK, although Germany has fared worse.

Moreover, the OBR’s longer-term outlook does not foresee a strong pick-up in growth, which is expected to be just 1.7% a year in 2028.

Mr Hunt highlighted a better-than-expected outlook on the pace of price rises, with inflation now expected to average 2.2% this year.

However, the OBR said the economy was entering a period of “declining inflation but stagnating output”. It said output per person would be slightly lower in five years’ time than it is now.

The OBR is the official economic forecaster, independent from government, and tasked with providing an update to its outlook twice a year.

While forecasts can be derailed by anything from geopolitics to government policies, they provide a rolling basis for assessing the state of the public finances.

The OBR said the conflict in the Middle East including disruption in the Red Sea could affect the UK’s economic prospects.

Currently the financial markets are expecting interest rates to fall significantly, but the OBR said they remained “highly volatile”.

The expectation of extra leeway from higher growth has allowed the chancellor to keep public spending rising at 1% above inflation and outline some giveaways in the Budget – including maintaining a freeze on fuel duty and alcohol duties and cutting National Insurance rates – without sharply raising borrowing.

Sir Keir said the government strategy was to “give with one hand and take even more with the other” since moves to cut fuel tax and National Insurance, which Labour supports, were not enough to counteract tax increases due to the freezing of the thresholds at which people start to pay tax, or pay a higher rate of tax.

With the government’s new measures taken into account, the OBR now expects borrowing to rise slightly in the next financial year, before remaining broadly in line with previous forecasts. It would fall below 3% of GDP by 2025-26, meeting one of the fiscal rules the government has set itself.

Overall the country’s debt, measured against the size of the economy, is still set to rise over the next four years, before falling back marginally in the fifth year, thereby meeting another of the government’s fiscal rules.

However, debt as a proportion of GDP will still be 92.9% in 2028-29, higher than the 89% it is expected to be this year.

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