Autumn Budget 2024: OBR forecasts how much economy will grow

The Office for Budget Responsibility (OBR) has upgraded its forecasts for this year and next, but downgraded the economy thereafter in a sign of the challenges facing Chancellor Rachel Reeves as she seeks to lift the UK’s sluggish growth rate.

The independent fiscal watchdog now expects the UK to grow 1.1 per cent this year, up from a previous estimate of 0.8 per cent.

Growth is then expected to rise to 2.0 per cent in 2025, an improvement on the OBR’s already optimistic forecasts back in March when it projected growth of 1.9 per cent.

The boost to growth will come as a result of government spending increasing by almost £70bn a year, or just over two per cent of GDP. Around half of this increase will be funded through an increase in taxes, with the rest coming through borrowing.

Looking beyond next year, the OBR downgraded its projections for 2026, 2027 and 2028, which took it closer to the consensus of independent economic forecasters.

“Budget policies temporarily boost output in the near term, but leave GDP largely unchanged in five years,” the OBR said.

The OBR also suggested that the policies announced in the Budget would push up inflation in the short term, projecting consumer price rises would average 2.5 per cent this year and 2.6 per cent next.

It had previously forecast that inflation would remain below the two per cent target from next year.

“Budget policies push up CPI inflation by around half a percentage point at their peak,” the OBR said, noting that monetary policy would have to “rein in any excess demand” in the economy.

The revisions highlight the difficulties Rachel Reeves will face in meaningfully lifting the UK’s growth rate. However, the OBR noted that a “sustained” increase in public investment would permanently boost the supply side.

Labour’s growth ambition

The government has set itself the target of securing the highest sustained growth rate in the G7. In the run-up to the election, Keir Starmer suggested that annual growth of 2.5 per cent – roughly what was attained under the last Labour government – was a realistic target.

Although the UK economy has comfortably exceeded expectations this year, it remains a long way off Starmer’s target. And last year the economy grew just 0.1 per cent.

The government hopes that increasing public investment, reforming the planning system, and addressing the rise in long-term sickness will enable it to deliver higher growth.

“This Labour government chooses investment over decline,” Reeves said as she delivered the Budget.

“The only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability…This budget will permanently increase the supply capacity of the economy boosting long-term growth,” she said.