The Office for Budget Responsibility (OBR) says that despite the new support with energy bills, living standards are going to fall by 7% over the next two years.
The OBR concluded that Jeremy Hunt’s £55bn package of spending cuts and tax increases will succeed in getting rising government debt under control.
However, it warns that even £100bn of spending, including keeping lower energy bills for a further year from April, only “cushions the blow of higher energy prices” in part.
“The economy still falls into recession and living standards fall 7% over two years, wiping out eight years’ growth,” the OBR stated.
It also expects unemployment rates to rise by 505,000 from 3.5%, with numbers peaking at 4.9% in the third quarter of 2024 as the UK is expected to go to the polls.
The OBR also found that more of GDP will be taken in taxes than at any point since the second world war. And, although debt is set to fall within five years, it is still forecast to be 99% of GDP and “roughly £400bn higher than forecast in March and interest costs close to historic highs”.
House prices are forecast to fall by 9% over the next two years and remain below their current level over the next five years. But interest rates are now expected to peak at 5% in the second half of 2023, not the 6.2% peak expected after September’s calamitous mini-budget.