Saturday, December 4

Budget 2021: what’s really going on in the UK economy? | Fall Budget 2021

BBritain’s economic recovery from Covid is increasingly at risk due to severe shortages of workers and materials, as well as rising household living costs, as Rishi Sunak prepares his budget and spending review.

Here are five key charts that will support the Chancellor’s statement Wednesday afternoon.

The UK economy

Real GDP graph

The British economy has recovered near pre-pandemic levels after a rapid rebound from the worst recession in 300 years, helped by vaccines and the easing of Covid restrictions. According to the latest official figures, GDP is only 0.8% below its February 2020 level. However, the severe shortage of workers and materials runs the risk of affecting growth, putting a full recovery at risk sooner. of Christmas.

The focus will be on today’s forecast from the Office of Budget Responsibility for the long-term economic “scars” caused by Covid, estimated at around 3% in its last update in March. The Bank of England has suggested that the impact could be less than feared, around 1%.

Combining the impacts of Covid and Brexit, a joint forecast by the Institute for Fiscal Studies and Citi bank predicted that GDP will remain 2.5% smaller than it would have otherwise been the case by 2024-25.

Public finances

Government debt table

The government’s budget deficit, the gap between expenditure and revenue, has improved from a record deficit of £ 355bn in the year to the end of March 2021, when it was at its highest on record in peacetime.

After the improvements, the IFS estimates that the loans could be roughly £ 55bn lower than the OBR forecast in March, around £ 180bn for the current financial year.

Despite these gains, rising inflation is raising the cost of servicing the national debt, a fact that worries Sunak. Public debt has risen from about 80% of GDP before the pandemic to about 96%, the highest level since the 1960s. Despite these increases, a group of 70 leading economists said that maintenance costs they remain at the lowest levels since the 1950s.

Leveling up spending

Expense table

Sunak is expected to announce spending limits for Whitehall departments for the next three years.

After a decade of austerity under the Conservatives, there is pressure on the chancellor to increase the funds available to fulfill the government’s promises of equalization.

Based on details announced at the launch of the spending review process last month, average growth in real terms of spending is expected to increase by 3.2% each year between 2021-22 and 2024-25, according to IFS. This is below the more generous deals agreed to under the Labor Party in the early 2000s, but much higher than in the 2010s, when steep cuts were made.


Unemployment chart

Unemployment in the UK has fallen steadily in recent months, from a high of 5.1% at the end of last year to 4.5% in the three months to August. Although higher than pre-Covid levels, when the unemployment rate stood at 4%, the result was much better than the 12% that was feared.

However, the latest figures represent a snapshot in time before the licensing regime was halted at the end of September, when as many as 1.4 million people were receiving salary support until its closure. Early layoff figures from the Insolvency Service suggest that job losses may have been limited, but many economists suggest that it is still too early to tell.

Sunak has been reassured that record job openings of more than 1 million could help control unemployment, as he hopes that the end of the leave plan could benefit companies struggling with severe staffing shortages.

Living costs

Inflation table

Rising energy bills have pushed inflation to the second highest level in a decade in recent months, tightening household finances ahead of a tough winter. The consumer price index stood at 3.1% in September, a slight drop from the previous month, despite the fact that prices rose on a wide range of goods and services.

The Bank of England’s chief economist warned that inflation could peak near 5% in the coming months, and that the barometer for rising cost of living will remain high until the middle of next year before gradually falling towards the rate. Bank’s 2% target. .

Inflation is being driven by an increase in global demand for energy and manufactured goods, as well as the severe disruption of international supply chains caused by Covid-19, with additional pressures from Brexit.

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