Sunak Says U.K. Is Set for Best Economic Growth Since 1973
(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak said the U.K. is on course to post the fastest growth rate since 1973 this year as he started delivering a budget he said will help the nation bounce back from the pandemic.
Britain’s economy, which contracted almost 10% last year, is set to grow 6.5% in 2021, according to a forecast from the independent Office for Budget Responsibility. That’s compared with a previous prediction of 4%, and marks the biggest upgrade since at least the 1980s.
With an eye on the next election that’s still years away and concerns that fanning the economy now would lift inflation and interest rates, the chancellor is likely to hold off on a big dose of largess for now.
“Today’s budget delivers a stronger economy for the British people -- stronger growth, with the U.K. recovering faster than our major competitors, stronger public finances, with our debt under control, stronger employment, with fewer people out of work and more people in work,” Sunak told Parliament in London on Wednesday.
Prime Minister Boris Johnson told Cabinet that the budget “will ensure public finances are on a sustainable path,” according to a statement from his office earlier on Wednesday. Sunak told ministers his measures are aimed at “promoting high skills, high productivity and higher wages” and will “level up” hard-hit regions of the country.
The actual growth figure for this year could be even higher, given the OBR said it had been asked to finalize its forecast for the economy before large upward revisions fed through to official gross domestic product data. The Bank of England predicts 7.25% growth this year.
Sunak also said:
- Growth will slow to 6% in 2022
- Output will return to its pre-Covid level by the end of this year
- 500 million pounds will go to help people struggling with the4 cost of living
- The OBR expects inflation to average 4% over next year, double the BOE’s target
- The OBR cut its long-term scarring assumption from 3% to 2%. That’s far more cautious than the Bank of England’s 1% estimate
- Heavy goods vehicles (HGVs) will be frozen at current levels until 2023
- Unemployment is likely to peak at 5.2%, well below the level of previous recessions
- Foreign aid payments to some of the world’s poorest people will return to 0.7% of GDP in the fiscal year starting in April 2024
- Departmental spending will rise 3.8% in real terms over the life of the current Parliament or by 150 billion pounds
- Capital spending on health will be the biggest since 2010
- Museums and cultural instigations get a tax break of almost 250 million pounds
The Treasury has already announced billions of pounds of spending in the past few days, although none of that will compare to the scale of stimulus that helped the country through the coronavirus pandemic.
The measures unveiled so far include an end to the public sector pay freeze he imposed a year ago, a large rise in the national living wage, and spending totaling almost 31 billion pounds on everything from sports fields and museums to border security and medical diagnostics. Of that, at least 5.9 billion pounds had already been announced.
Sunak announced a series of new fiscal rules that will guide public finance decisions in the future.
“Higher borrowing today is just higher interest rates and even higher taxes tomorrow,” Sunak said. “So we need to strengthen our public finances so that when the next crisis comes, we have the fiscal space to act.”
The debt forecasts indicate Sunak is attempting to consolidate the public finances. He estimated:
- Debt as a portion of GDP will reach 82.5% this year, peak at 85.7% in 2023-24 and then fall in the final years of the forecast to 83.3%
- Borrowing as a percentage of GDP will fall in every year of the forecast from 7.9% this year to 3.3% next year and then down to 1.5% at the end of the forecast horizon.
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