The UK economy is projected to grow slightly faster than previously expected this year and next, according to the Office for Budget Responsibility (OBR). In her presentation of the Budget, Chancellor Rachel Reeves announced that the OBR now forecasts a 1.1% growth in 2024, up from an earlier estimate of 0.8%. The outlook for 2025 has also improved, with growth anticipated at 2%, an increase from the March forecast of 1.9%.
Despite the positive short-term outlook, the OBR predicts that growth will slow towards the end of the current parliamentary term. For 2027 and 2028, growth is projected at 1.5%, down from the earlier estimates of 1.8% and 1.7%, respectively. Overall, the economy is expected to expand by nearly 8.2% by 2028, slightly lower than the previous forecast of 8.5%.
Chancellor Reeves emphasized that the Budget signifies “an end to short-termism,” as the OBR will now provide a 10-year growth forecast alongside its analysis. “Every Budget I deliver will be focused on our mission to grow the economy,” she stated.
While the OBR’s forecast indicates stronger growth initially, the subsequent dip raises concerns about the cumulative impact on the economy by the end of the parliamentary term. Paul Johnson, director of the Institute for Fiscal Studies, described the updated growth forecast as “pretty disappointing,” noting that economic growth is a critical factor influencing the government’s financial capabilities.
Strong economic growth typically leads to increased tax revenues, allowing for greater investment in public services and reduced taxes. Conversely, weak growth may force the government to scale back its spending plans. Despite these challenges, Reeves assured that there would be no return to austerity but acknowledged that “there will still be hard decisions to come.”
The Chancellor asserted that the OBR believes Labour’s proposed policies would positively influence the “supply capacity of the economy,” enhancing its growth potential. However, the government remains aware that economic forecasting is inherently uncertain and can be influenced by various factors, including geopolitical risks, global energy prices, and developments in other major economies.
In her address, Reeves highlighted plans to “catalyse £70 billion of investment” through the establishment of a new National Wealth Fund. She also outlined intentions to reform planning rules to encourage construction across the UK and pledged to collaborate with devolved governments in Wales, Scotland, and Northern Ireland, as well as regional mayors, to enhance local and regional growth initiatives.
As the UK navigates a complex economic landscape, the government’s commitment to fostering growth will be closely monitored amid evolving global circumstances.
