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Budget 2021 | PwC comment on OBR Budget forecasts

27/10/21

Please see below for PwC comment on today's OBR forecasts in the Budget

Jonathan Gillham, chief economist at PwC, says

"The OBR have upgraded their forecasts for 2021 from 4% to 6.5%. This makes it much more likely that we will see the economy return to pre-COVID levels before Christmas. This would beat the most optimistic forecasts made at the March 2021 Budget. For context, most recent data from August suggests that the economy was only 0.8% below pre-pandemic levels.

"The OBR also downgraded their estimate of the scarring of COVID on the UK economy from 3% to 2% (BoE are saying that this figure might be as low as 1%). This shifts the whole growth forecast up and gave the Chancellor more fiscal headspace to play with. Encouragingly it is suggested that a lot of labour market growth is being driven by higher employment in younger age groups and earnings growth for lower productivity/lower paid workers.

"However, this rapid recovery must be viewed through the lens of inflation which is largely being “imported” from overseas, This is because some countries have not opened up as rapidly as the UK, are still in lockdowns and have less access to vaccines, so there are supply chain shortages.

"Also, energy prices have risen sharply, again, as key production and extraction facilities are not at full capacity. There is increased competition for scarce resources. Inflation forecasts for 2022 have more than doubled since the last forecast peaking at 4.4% in the second quarter of 2022. 

"The key risk to the recovery is polarisation. Some households are benefiting from rapid earnings growth some are not, the UK’s economic geography in the Chancellor’s words is “uneven”, some industrial sectors are recovering more quickly than others. If the households and businesses that are not able to share as much in the upgraded recovery projections are pushed under by rising inflation, this could slow the recovery."

Ends

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