OBR confirms UK enters ‘year-long’ recession with half a million job losses likely

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The UK has fallen into a recession which will last more than a year and push half a million people out of work, according to a fresh forecast from the Office for Budget Responsibility (OBR).

There will be the biggest fall in living standards since records began with inflation “tipping the economy into a recession lasting just over a year”, the spending watchdog said.

The drop in household spending power will be so acute in the next two years it will effectively wipe out the past eight years of growth, as wage rises fail to keep pace with inflation and interest rates rises. It will effectively turn the clock back to 2013, the OBR said.

It also marks only the third time since the mid-1950s in which there will be back-to-back years of falling living standards. The last time was in the aftermath of the global financial crisis.

The economy will shrink by 2%, driving up unemployment by 505,000 by the second half of 2024, the OBR said. GDP will only reach its pre-pandemic level by the end of the same year.

“The medium-term fiscal outlook has materially worsened since our March forecast due to a weaker economy, higher interest rates, and higher inflation,” the OBR said in its latest update on the outlook for the economy and public finances published alongside Jeremy Hunt’s autumn statement.

While household incomes are squeezed, taxes will rise to 37.1% of GDP, their highest sustained level since the second world war.

Overall, the spending watchdog said that government borrowing was likely to be higher than forecast in March this year, but that it will fall relative to economic output from 2024-25 onwards.

The OBR was embroiled in a political storm around Liz Truss and Kwasi Kwarteng’s mini-budget, which went ahead in September without releasing forecasts from the watchdog.

It said on Thursday that its forecast “has been unusual in both the time it took to produce and the process leading to its publication”, in light of the furore.

The omission of independent economic and borrowing forecasts inflamed a sell-off in UK government debt, known as gilts, as investors felt the government had made a deliberate decision to avoid independent scrutiny of their spending plans.

The pair met with Richard Hughes, OBR chair, in the aftermath of the mini-budget in a bid to cool markets.

Ahead of the autumn statement, the watchdog warned: “This forecast process has been unusually uncertain, with various changes to both internal and public deadlines for forecast rounds, policy changes and publication dates.”

The document it produced was also far shorter than usual and noted that there have been “five fiscal events since March”.