UK economy will take more than a year to recover to pre-Covid level, says OBR

theguardian.com:

The UK economy will take more than a year to recover its pre-pandemic strength despite Jeremy Hunt’s efforts to boost growth after last year’s mini-budget debacle.

A loosening of the purse strings over the next five years by the chancellor will prevent the economy falling into recession this year, according to the Office for Budget Responsibility, making the downturn “shorter and shallower” than it was predicting in November.

However, it will take until the summer of 2024 before the economy regains the same level of activity seen in 2019.

Despite the slightly brighter outlook for the economy, which was previously expected to slide into recession this year, the OBR warned households are still facing the largest fall in living standards on record over the next two years.

Wage rises are expected to continue to ease, leaving living standards 5.7% lower at the end of the next financial year, the largest two-year fall since records began in 1956-57.

Headline inflation is forecast to fall sharply, from a current rate of 10.1% to 2.9% by the end of the year.

Paul Johnson, the director of the Institute for Fiscal Studies, said the broad economic outlook for the next five years was largely unchanged since the autumn when the fallout from the mini-budget prompted the OBR to forecast a recession in the first half of the year.

“The OBR expects the economy to grow a bit faster in the short term, and a bit slower in the medium term, combining to produce an economy 0.6% larger in real terms in 2027–28 than under the autumn forecast,” he said.

Extra government spending, falling inflation, and lower than previously expected interest rates this year prompted the OBR to predict the UK economy will shrink by 0.2% in 2023, a much smaller contraction