According to a Wall Street bank, the UK’s financial watchdog has been overly optimistic in its economic growth forecasts, resulting in a potential £60bn shortfall for the government.
Citi analysts pointed out that the Office for Budget Responsibility (OBR) has overestimated the UK’s potential productivity growth. They argue that while the OBR expects a yearly increase in British output of about 0.9%, this figure is roughly double the rate experienced since the pandemic.
Citi suggests a more realistic growth rate would be around 0.5%, considering likely supply shocks in the future. The bank also warns that fiscal forecasts could be £30bn to £35bn less favourable than OBR’s current predictions, and the planned reductions in public spending are not feasible.
This situation could mean the government needs to allocate an additional £20bn to £25bn beyond its current budget plans. Citi estimates the total deviation from forecasts to be between £50bn and £60bn. The bank cautioned its clients that the fiscal challenges emerging post-Covid are just starting.
Real wages will not hit pre-2008 levels until 2026
The Resolution Foundation has criticized Jeremy Hunt’s Budget as being supported by unrealistic public spending cuts, described as “fiscal fiction.” Research Director James Smith, in a press briefing, warned of significant public spending reductions following the general election.
He explained that the government’s day-to-day spending figures from 2025-26, after accounting for committed funds in health, defense, and education, imply substantial cuts to other departments. These cuts, Smith noted, are nearly as severe as those in 2010, amounting to around £20bn.
He highlighted that recent tax cuts and the £20bn national insurance relief since autumn have been effectively financed by these anticipated but questionable spending reductions.
Regarding living standards, Smith remarked that real wages won’t return to their pre-2008 levels until 2026, indicating nearly two decades of stagnant real wage growth. This presents a grim outlook for living standards. He also pointed out that in terms of overall income, this is set to be the first parliamentary session with recordable data where real household disposable income is actually decreasing.
