With one bound the chancellor is free – or so it would seem, listening to Rishi Sunak deliver the budget. But as always, the numbers tell a truer story than the words. And the numbers say that, while the forecasts for the UK’s recovery have been upgraded, that is only because they were unduly negative in the past – and there will still be a massive tightening of fiscal policy next year.
The economy first. Start with a simple measure: when will the UK economy get back to its pre-pandemic size? The Office for Budget Responsibility (OBR) now thinks it will be at the end of this year, instead of well into 2022. That’s a relief, and we should get there at about the same time as Germany and France. But the US got back to its pre-pandemic size in the middle of the summer. So too did Canada and Australia. So the UK performance, while all right by European standards, is not so impressive compared with the rest of the English-speaking world. And of course China, the world’s second-largest economy, was above its pre-pandemic level well before the end of last year.
The projections for the budget deficit have changed: it is now forecast to be 7.9 per cent this fiscal year, coming down to 3.3 per cent next year. That too is much better than the OBR projected in the spring, and is roughly the same as the latest numbers for Germany and France. The German finance ministry now thinks the deficit will be about 7.5 per cent of GDP this year, falling to 3.25 per cent next, while for France the equivalent figures are 8.1 per cent and 5 per cent. For the US, given the conflict in Congress, the figures are unclear, but for what it is worth, most recent official projections are for a deficit of 10.3 per cent of GDP and 4.6 per cent in 2022.
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