Discovering a billion-pound hole in British finances

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The government spending watchdog has warned that the country faces a gap of billions of pounds ahead of the budget in March.

In its fall statement, the chancellor announced that the Office for Budget Responsibility had projected global economic growth to decline by 1.4% this year before picking up again over three years, at 1.3%, 2.6%, and then 2.7%.

But in a new report to the Treasury, seen by The Times, the Office for Budget Responsibility privately warned Jeremy Hunt not to expect an even bleaker economic future. It plans to revise growth forecasts to reduce it by between 0.2 and 0.5 percent.

Sources said the review was necessary due to the weak economy and lack of labor market.

The revelations came as senior Tory MPs were privately calling on the chancellor to cut taxes after a year in which households and businesses shed 10 per cent more than usual.

Britons paid an average of £821 to the Exchequer this financial year, according to statistics from HM Revenue and Customs analyzed for the Telegraph. Although the Treasury accounted for £553 billion between April and December, forecasters have reportedly warned that the government actually has no room for spending announcements, and on March 15 it may have to tighten Treasury restrictions more than previously expected.

“There seems to be a view that Hunt suddenly has all this money to play with for tax cuts,” a government source told The Times. But this is not the view internally. The Balance Sheet office figures suggest that the outlook for economic growth over the medium term will actually be worse than it was in November.”

The Telegraph reported last week that lower fuel prices and cheap clothing helped bring down inflation for the second consecutive month while consumer prices grew at 10.5% in December 2022, continuing to slow from a 41-year high in October.

But, as economist Roger Bottle explained this week, the pressure didn’t stop just because the pressure from rising inflation seemed to be past its peak.

“Indeed, while inflation precedes wage increases, real wages still fall,” Bootle writes.

Hunt’s recent advice reflected that sentiment. Treasury officials reportedly told him that underlying inflation — including wage growth — could push interest rates higher than expected.

The result, if the new predictions are correct? Longer recession and weaker recovery.

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