Chancellor unveils new fiscal rules to restrain spending
Inflation is to spike to 4 per cent next year as the economy struggles to keep up with demand in the wake of Covid and Brexit, the Chancellor has revealed.
In his Budget speech to the Commons on Wednesday Rishi Sunak said inflation was 3.1 per cent in September and is “likely to rise further”,.
He revealed that the Office for Budget Responsibility now expected CPI to average 4 per cent over next year.
But there was better news on the growth front for the UK economy as Mr Sunak told MPs that the OBR believed less economic “scarring” had happened as a result of the pandemic than previously predicted.
As a result, the OBR’s latest growth forecasts expects the economy to now grow more rapidly, by 6 per cent in 2022 – and then at a rate of 2.1 per cent, 1.3 per cent and 1.6 per cent in the following years.
Mr Sunak said the OBR “forecast the economy to return to its pre-Covid level at the turn of the year – earlier than they thought in March”.
Addressing the issue is inflation, he said “demand for goods has increased more quickly than supply chains can meet” as economies around the world reopen, while global demand for energy has also “surged”.
Mr Sunak said: “In the year to September, the global wholesale price of oil, coal and gas combined, has more than doubled. The pressures caused by supply chains and energy prices will take months to ease.
“It would be irresponsible for anyone to pretend that we can solve this overnight. I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own.”
The chancellor also used his autumn budget to announce he would create two new fiscal rules for spending, which he claimed would “keep this Government on the path of discipline and responsibility”.
The self-imposed rules are likely to restrict public spending in the coming years and could see more austerity imposed on public services.
Under the rules, “underlying public sector net debt, excluding the impact of the Bank of England, must, as a percentage of GDP, be falling”.
Additionally, he said, “in normal times the state should only borrow to invest in our future growth and prosperity”, with the stipulation that “everyday spending must be paid for through taxation”.
He said that both rules “must be met by the third year of every forecast period giving us the flexibility to respond to crises while credibly keeping the public finances under control”.