The UK Treasury and the Bank of England are about £112 billion ($133 billion) apart in their outlooks for the economy.
(Bloomberg) — The UK Treasury and the Bank of England are about £112 billion ($133 billion) apart in their outlooks for the economy.
The Office for Budget Responsibility, which released new forecasts on Wednesday, reckons that the British economy will be 5% bigger in real terms at the end of 2025 than it was at the end of 2022. The central bank, in its February assessment, saw no growth at all over the same period, with output still below the level before Covid struck.
The gap between the two amounts to around £112 billion a year.
“It is slightly odd — I don’t know if it’s damaging — but it’s certainly slightly odd that we have our monetary policy and our fiscal policy made on the basis of two extremely different economic forecasts,” Paul Johnson, director of the Institute for Fiscal Studies, said at a briefing Thursday to analyze the budget measures announced by Chancellor of the Exchequer Jeremy Hunt.
The discrepancy is partly explained by rival views on how quickly the economy can grow without adding to inflation. The OBR estimates potential growth at around 1.7% a year – a full percentage point higher than the BOE and above what many private-sector economists are forecasting.
An improvement in the economic outlook since November delivered a significant tax windfall for the chancellor, much of which he spent to make child care more affordable and extend investment tax relief for companies.
Meanwhile, the BOE’s pessimistic assessment of supply growth has left policy makers no room for complacency in their fight to bring double-digit inflation back to the 2% target.
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