Ten months after former chancellor Kwasi Kwarteng’s disastrous mini-budget, the public has for the first time been given the chance to see the Office for Budget Responsibility’s autumn 2022 forecast on the state of the economy.
The Government spending watchdog’s pre-budget report was handed to Kwarteng on 5 September, days before he gave MPs details of his growth package, one of the worst-received Treasury measures in recent history.
In a break with tradition, the chancellor refused to publish the OBR forecast, but it was finally made public on Wednesday thanks to a freedom of information request. It reveals that Kwarteng went ahead with a package of tax cuts despite being told by the OBR that the economy was on course for a yearlong recession and that higher interest rates were pushing up the cost of servicing the UK’s debts.
The decision to withhold the OBR forecast contributed to the financial market jitters before an event that subsequently led to a run on the pound, sharply higher borrowing costs and a crisis in the UK pensions industry. Kwarteng was sacked by the prime minister, Liz Truss, three weeks after the mini-budget and after only 38 days as chancellor.
“The economic outlook has worsened significantly since we last produced a forecast in March,” the note says. “Historically high gas prices have already driven inflation to its highest level in 40 years and we expect inflation to rise even further over the next few months.”
Based on the assumption that there were no tax cuts or spending increases, the OBR report, obtained after the SNP MP Stuart McDonald put in a freedom of information request, predicted the sharpest fall in living standards in modern times. “The resulting sharp drop in real consumer spending in this forecast pushes the economy into a yearlong recession, with GDP falling from the fourth quarter of 2022 until the third quarter of 2023.”
The report also said borrowing in the five years from 2022-23 to 2026-27 was on course to be cumulatively £109bn higher than the OBR had predicted at the time of the March 2022 budget.
In a letter to McDonald, the OBR’s director, Richard Hughes, said the note was produced 18 days before Kwarteng’s growth plan, hailed by the then chancellor as the biggest package of tax cuts in generations. The economic and fiscal forecasts did not reflect any of the measures in Kwarteng’s statement or from Truss’s energy support package.
The OBR made its forecasts before the sharp fall in wholesale gas prices, on a lower peak for interest rates, and before the increase in taxes announced by Kwarteng’s successor Jeremy Hunt in November last year. “So, relative to what has transpired, the draft forecasts described in the note are conditioned on more challenging wholesale gas prices, more favourable market interest rates, and less supportive near-term fiscal policy,” Hughes said in his letter to the MP.
In the six months following Kwarteng’s mini-budget, the OBR has produced two separate economic and fiscal assessments for Kwarteng’s successor, Jeremy Hunt, in which it has become less gloomy about the state of the economy. Its report in November 2022 predicted a 1.4% growth contraction in 2023, and by March it was forecasting a fall in output of 0.2%.
A Treasury spokesperson said: “The document published reflects the OBR’s preparatory work sent to the then chancellor on his first day in office. The draft forecast did not include any policies ultimately announced in the growth plan.”
