Growth forecast slashed as Sunak promises help to cope with economic uncertainty

Rishi Sunak delivered his spring statement against a backdrop of rising inflation and the war in Ukraine.

Chancellor of the Exchequer Rishi Sunak leaves 11 Downing Street as he heads to the House of Commons, London, to deliver his Spring Statement (Aaron Chown/PA). (PA Wire)

Forecasts for economic growth have been slashed due to the uncertainty caused by the Ukraine war and rising inflation as Chancellor Rishi Sunak acknowledged the challenges facing the UK.

The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product – a measure of the size of the economy – from the 6% forecast for this year at the time of the Budget in October to just 3.8%.

With inflation at a 30-year high, Mr Sunak promised a series of measures to help household finances – including a 5p per litre cut in fuel duty and a national insurance cut for millions of workers.

Mr Sunak said the OBR had warned “there is unusually high uncertainty around the outlook”.

“It is too early to know the full impact of the Ukraine war on the UK economy,” he told MPs.

“But their initial view, combined with high global inflation and continuing supply chain pressures, means the OBR now forecast growth this year of 3.8%.

“The OBR then expect the economy to grow by 1.8% in 2023, and 2.1%, 1.8% and 1.7% in the following three years.”

The cost-of-living crisis driven by rising fuel and energy prices was set to be exacerbated in April by the 1.25 percentage point hike in national insurance to fund the NHS and social care.

But Mr Sunak unveiled a £6 billion plan to increase the threshold at which people start paying national insurance contributions (NICs) by £3,000 to £12,570 from July.

Mr Sunak said it was “a £6 billion cut in  personal tax cut for 30 million people across the United Kingdom, a tax cut for employees worth over £330 a year”.

The Chancellor said around 70% of workers would have their tax cut by more than the increase coming in April.