Getty ImagesThe UK economy will grow slightly faster than expected this year and next, but the pace will then slow, according to official government forecasts.
The Office for Budget Responsibility (OBR) predicts the economy will grow by 1.1% this year and 2% in 2025.
But starting in 2026, growth is expected to be weaker than previously forecast, slowing to 1.5% in 2028.
The OBR said the policies in the Budget would provide a “temporary boost” to the economy in the short term, but the size of the economy would remain “largely unchanged over five years”.
Chancellor of the Exchequer Rachel Reeves said the budget would mark “the end of short-termism”.
“Every budget I submit will focus on our mission of growing our economy,” she said.
The government has pinned its reputation on promoting growth, arguing that new investment approaches will underpin better economic performance and “more pounds in people’s pockets”.
However, while the OBR’s short-term growth forecast is higher than forecast in March, the outlook for later parliament has been revised down from earlier forecasts.
Paul Johnson, director of the Institute for Fiscal Studies, said: “The OBR notes that there will be a sugar boom in the short term due to profligate debt-financed spending, but this will turn into a modest negative impact by the end of parliament.” An independent The economic think tank said in a report.
The OBR said investment, planning reforms and greater economic stability should help boost growth “in a sustainable way” in the longer term, but not until 2032.
It is difficult to make accurate predictions for the next few years, and economic forecasts are updated regularly.
Strong growth in the early years of the parliament followed by weaker growth in subsequent years suggests that the cumulative impact or overall size of the economy at the end of the parliament would not be much different.
Overall, the economy will grow by nearly 8.2% by 2028. Growth in March is expected to be nearly 8.5%.
However, Paul Johnson, director of the Institute for Fiscal Studies, an independent economic think tank, described the growth forecast as “pretty disappointing”.
He told the BBC that measures in the budget would increase demand this year and next, which could lead to higher inflation and interest rates, leading to slower growth in later years.
The OBR expects inflation to be slightly above the Bank of England’s 2% target by 2029.
How much the economy grows is a key factor limiting what the government can do during parliament.
If growth is strong, tax revenues are likely to rise, meaning more money for public services, tax cuts and to pay interest on government borrowings. If growth weakens, the government may have to cut back on what it wants to do.
Reeves said that while there would be no return to austerity, “tough decisions will still be made.”
But she said the Budget Office believed Labour’s plans would have a positive impact on “the economy’s ability to deliver”, or its ability to grow.
The government’s policy plans are based on the OBR’s forecasts. However, economic forecasting is not an exact science.
Forecasts may be affected by a variety of factors, including geopolitical risks, global energy prices and events in other large economies around the world. Small changes in any of these factors could have an impact on the UK’s growth path.
Reeves said she would “boost £70bn of investment in the UK” through a new National Wealth Fund and change planning rules to “boost Build Britain”.
She said she would work with the devolved governments in Wales, Scotland and Northern Ireland, as well as regional mayors, to drive forward local and regional growth plans.
