The Chancellor has been handed ‘horrible’ forecasts by the OBR. The outlook for growth has also deteriorated since March. UK real GDP was still 0.4% below its pre-coronavirus level in Q3.
The structural issues facing the UK economy remain profound. Of course, the immediate objective of Thursday’s budget will be to turn around the housing market. According to RICS, the outlook for house prices over the next twelve months is now worse than during the pandemic low. Taylor Wimpey has warned demand for new homes is falling rapidly.
Dwellings investment has been a lone ‘bright’ spot for the UK economy since the pandemic, but this now threatens to turn down too. Real business investment continues to languish (down 8.4% since the end of 2019). This will be compounded by potential cuts to government GFCF on Thursday.
‘Austerity 2.0’ will also coincide with a growing health crisis, with NHS waiting times hitting a record high.
According to the ONS, “The number of working-age adults who are out of the labour market (known as “economically inactive”) because of long-term sickness has been rising since 2019, from around 2.0 million people in spring 2019, to about 2.5 million in summer 2022.”
The pandemic appears to have exacerbated a national health crisis that has been many years in the making and which is weighing on the supply capacity of the UK economy.
There may be no single factor behind the deteriorating physical health of persons aged 50-64, or the poor mental health of young persons for that matter, and certainly no silver bullet. But our response to the pandemic has perhaps affected young persons by much more than we are willing to acknowledge. And this is particularly worrying. In any case, the OBR is now set to revise down the growth potential of the UK economy, with the additional hit to the public finances this entails.
