UK inflation will fall faster than anticipated in last year’s Autumn Statement, according to figures from the Office for Budget Responsibility (OBR) and read today by chancellor Jeremy Hunt during the 2024 Spring Budget, who said it will fall below the Bank of England’s 2% target “in just a few months’ time”.
Chancellor Hunt told the House of Commons today (6 March) that, when he and prime minister Rishi Sunak first took office, inflation stood at 11% and is currently 4%.
Elsewhere, GDP growth will likely come in at 0.8% this year and 1.9% next year, which is 0.5% higher than was previously expected.
“We have grown faster than Germany, France or Italy, the three largest European economies,” the chancellor said. “And according to the IMF, we will continue to grow faster than all three of them in the five years ahead.”
However, national debt will be higher than anticipated during the Autumn Statement, with the OBR forecasting that net debt for the 2024-25 financial year will stand at 91.7% of GDP – ten basis points higher than expected in November. In 2025-26 debt to GDP is forecast at 92.8%, and at 93.2% for the following year.
By the 2028-29 fiscal year, debt to GDP is forecast to stand at 92.9%, also 10 basis points higher than was originally expected. This, however, still means the Chancellor is meeting his fiscal rule of debt falling as a percentage of GDP over the next five years.
Lindsay James, investment strategist at Quilter Investors, said despite the accelerated drop in inflation, the overall attitude is one of “fiscal restraint and uncertainty”.
“With frozen tax thresholds the largest contributor to the rising tax burden, set to drive the number of taxpayers in the higher rate band up by 68% by the end of the OBR’s five-year forecast period, the question remains when these will be addressed – and the answer is still most likely not any time soon,” James said.
“Though this is a difficult backdrop for economic growth, there remain reasons to be optimistic. There are early signs of growth beginning to pick up, with business and consumer confidence having improved in recent months. Meanwhile, interest rates are still expected to fall in the coming year, oiling the cogs of the economy just as innovation in sectors such as AI and life sciences has taken a giant leap forward, with obvious productivity benefits that the Chancellor is keen to harness. If these growth opportunities are successfully employed by whichever government is in power by January 2025, then the economy may be able to drive better fiscal outcomes in the years ahead.”
