Fresh blow to Rachel Reeves as growth forecasts slashed yet again. (Image: Getty)
Britain’s outlook has taken another hit as the country’s spending watchdog prepares to slash growth forecasts. The downgrade will pressure Chancellor to raise or cut spending.
The latest assessment, delivered ahead of the Spring Statement on March 26, suggests that the UK’s sluggish performance will force the Office for Budget Responsibility (OBR) to slash its predictions for 2024 and 2025.
Economists warn that achieving the OBR’s current forecast of 2% growth in 2025 is now highly unlikely.
Andrew Goodwin, chief UK economist at Oxford Economics, said: “Unless there are favourable historical revisions, then to hit 2pc for 2025, you would need quarterly growth to average 0.75pc throughout this year. We’ve only had one quarter that’s been that strong in the past couple of years.”
A key source of concern is Ms Reeves’s decision to raise employers’ contributions by £25 billion.
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The Chancellor’s controversial National Insurance policy has been described as a ‘cardinal error’. (Image: Getty)
Sir Charlie Bean, a former senior official at the OBR and the Bank of England, called it a “serious policy error.” He added: “The cardinal error in the Budget was the particular way that she raised revenues.”
He warned that lowering the NI threshold from £9,100 to £5,000 would lead to job losses, particularly in low-wage sectors like hospitality and care, where businesses cannot offset higher costs by reducing wages below the legal minimum.
He predicted that the UK would see a rise in unemployment in the coming months due to the policy.
The OBR is now expected to revise its 2024 GDP growth forecast from 1.1% to around 0.7% and its 2025 forecast from 2% to closer to 1.3%.
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Concerns are mounting that Ms Reeves may have to announce emergency measures to balance the books. Her record £40billion tax hike and rising borrowing costs have significantly reduced the financial buffer she left herself. Analysts estimate her remaining headroom has shrunk to just £3 billion, the smallest on record for any Chancellor.
The Bank of England is expected to cut , which could offer Ms Reeves some relief. However, the growing fiscal strain has fueled speculation that further tax rises or spending cuts may be inevitable.
A Treasury spokesman said: “The Government is committed to sound public finances and economic stability, which is why our fiscal rules are non-negotiable. We will not provide a running commentary as the independent OBR prepares its forecast, which is due to be published on March 26.”