Rachel Reeves’ freshly announced £40billion budget will stall growth, the Office for Budget Responsibility has warned.
The fiscal watchdog has downgraded growth forecasts for the next five years, in a blow to the Chancellor’s fiscal vision where the party said they would embark on “large, sustained increase in spending, tax and borrowing”.
The economy will continue to grow at the rate it was previously forecast, despite Reeves pledging £70billion in spending increases.
The extra spending will give a short-term lift to economic output, however, the average growth rate over the next five years will remain unchanged.
The OBR said that increased public spending would “crowd out” private investment while tax increases on businesses could jeopardize profits and wages.
They added that interest rates and inflation would jump up by 0.25 and 0.4 percentage points, respectively.
Richard Hughes, the head of the OBR, said the new changes lined out in the Budge the tax burden will reach “a historic high of 38 per cent of GDP by 2029/30”.
Hughes said: “Against a largely unchanged economic and fiscal backdrop since our last forecast in March, this budget delivers one of the largest increases in spending, tax and borrowing of any single fiscal event in history.”
Chancellor: ‘We won’t have to do a Budget like this ever again’
Rachel Reeves delivered the Budget this afternoonPA
Rachel Reeves said that yesterday’s £40billion budget was a one-off event which has “wiped the slate clean”.
She said that “as a result of what we have done we are not going to have to come back and ever do a Budget like this again”.
The Chancellor told Sky News this morning: “This was a Budget that fixed the foundations and wiped the slate clean. It was a big Budget, it was a significant Budget but we have now brought out into the open things that were covered up by the previous government and swept under the carpet.”
She said that the debt and deficit are now on a more stable path and everything is now out in the open.
“As a result of what we have done we are not going to have to come back and ever do a Budget like this again because we have brought everything out into the open.”
