The Office for Budget Responsibility (OBR) has slashed its growth forecast in half to one per cent as Chancellor Rachel Reeves said she was “not happy” about the revised figures.
Reeves has insisted that high growth is key to Labour’s mission in government, while Prime Minister Keir Starmer has previously suggested that it is aiming for a rate of 2.5 per cent.
However, the latest OBR verdict on the UK economy undercuts the government’s ambitions, suggesting that it is unlikely to achieve its targets.
The OBR also upgraded its inflation forecast to a peak of 3.2 per cent for the year.
The figure is lower than the Bank of England’s prediction that it will reach as high as 3.75 per cent.
Reeves said she had restored headroom worth £9.9bn after higher borrowing brought by a “period of heightened uncertainty” wiped it out.
This headroom was restored after public spending cuts were made to welfare.
City analysts said ahead of the Spring Statement that her previous headroom worth around £9.9bn had been wiped out as a result of sluggish growth and high debt repayments.
Her ironclad fiscal rules – to reduce net public debt and deliver a current balance in five years – have subsequently forced her to seek savings.
In an eleventh hour effort to meet the rules, it was revealed that the Chancellor was making further benefit cuts worth £500m as the OBR said initial savings to welfare would save less than it had planned.
The welfare cuts have increased tensions within the Labour Party as some ministers have reportedly spoken out against the cuts in meetings.
The government is also making cuts to jobs in the civil service, skimming 15 per cent of its running costs.
The cuts announced will amount to more than £2bn by 2030, ministers said.
