Treasury and OBR Face Strain as Growth Forecasts Diverge
London – The UK Treasury is reportedly seeking to exert influence over the Office for budget Obligation (OBR) following a recent downgrade of economic growth forecasts, sparking tensions over Labour’s fiscal plans.The disagreement centers on the OBR’s assessment of the UK’s economic outlook and its implications for the Chancellor’s ability to meet her fiscal rules.
The OBR’s revised forecasts, delivered after the Spring Budget, painted a bleaker picture of the UK economy than previously anticipated. this downgrade has constrained the Chancellor’s financial maneuvering room and raised questions about the feasibility of Labour’s spending commitments.
Andy King, formerly of the OBR’s budget responsibility committee and now at Flint Global, noted the difficulty of delivering such a forecast nonetheless of the political timing. “It would have been very difficult for the OBR to have done it in the last forecast before the election or the first one after it,” he said. However, he emphasized the necessity of the adjustment, stating the OBR had become an outlier with overly optimistic projections that were “not tenable in the long term.” He further explained that accurate forecasting five years prior would have revealed insufficient tax revenue to fund desired public services.
Former Bank of England deputy governor Charlie Bean attributed the current situation to the Chancellor’s fiscal policy decisions, specifically the limited £10bn of “headroom” allocated against her fiscal rules. “Because of the way she’s chosen to operate policy,and adopted a ludicrously small headroom,she’s made herself a prisoner of the OBR’s judgment,which is a bonkers way to operate fiscal policy,but it’s not really a criticism of the OBR,” he commented.
A Treasury source disputed claims of friction with the OBR, asserting the Chancellor’s support for the institution. “Rachel has defended the OBR, including in response to people in her own party. She’s strengthened the OBR. She respects institutions because she knows they’re integral to our economic credibility,” the source stated.
The OBR is an independent body responsible for providing forecasts of the UK economy and assessing the sustainability of the goverment’s plans. Its reports are crucial for informing fiscal policy and maintaining economic stability. The current tensions highlight the delicate balance between government policy and independent economic assessment.
