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The economy and public finances

In contrast to his two previous Budgets in Spring 2020 and Spring 2021, the Chancellor struck a strikingly optimistic tone about the country’s economic prospects.

He said that forecasts from the independent Office for Budget Responsibility (OBR) predict economic growth of 6.5 per cent this year, with the economy returning to its pre-pandemic size at the beginning of 2022.

Next year, the OBR expects GDP to rise by 6 per cent, followed by increases of 2.1 per cent in 2023, 1.3 per cent in 2024 and 1.6 per cent in 2025.

The forecast is significantly better than that presented at the Spring Budget when the OBR predicted economic growth of 4 per cent this year.

Meanwhile, the OBR’s forecasts for long-term economic scarring as a result of the pandemic and for unemployment have been cut from 3 per cent to 2 per cent and 12 per cent to 5.2 per cent respectively.

Acknowledging the increasing pressure on households and businesses, the Chancellor said that inflation is predicted to average 4 per cent next year.

Turning to borrowing, the Chancellor announced a revised Charter for Budget Responsibility, which will require that:

  • Debt falls as a percentage of GDP in normal circumstances
  • Borrowing is restricted to investment in future growth and not used for day-to-day spending
  • Public net investment does not exceed 3.5 per cent of GDP on average

He said these rules have been met.