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The UK’s independent forecaster foresees that households will be worse off after the pandemic, 2023.

Charlie Bean, a member of OBR’s committee, stated to MPs that the incomes wouldn’t return to 2019 levels for at least two additional years.

According to him, the primary reason for this was “a very slow rate of productivity growth.”

Large parts of the economy were effectively frozen by the pandemic, and many companies had to be shut down completely.

Bean explained that real household disposable income has not increased above pre-pandemic levels by 2023. It’s also growing at an incredibly slow pace from there.

At a hearing of the Treasury Committee, he was asked about the slow rise in household disposable incomes following the financial crisis. Incomes are forecast to have increased by 2.4% between 2008-2024, compared with a 36% increase in 16 years prior.

We do see a slight increase in productivity. [in our forecast]. However, it is not as high as the pre-epidemic levels,” he stated.

It is very similar to the forecast provided by Institute for Fiscal Studies as a response to Budget.

It also forecast a weak near-term outlook on personal finances. The firm predicted that low inflation would lead to higher taxes and less wage increases.

The report also stated that low-income households will also experience “real pain”, as their cost of living is expected to rise faster than benefits payments.

Richard Hughes, OBR chairman, said that Rishi Sunak may have difficulty meeting his three-year targets to reduce debt and balance the budget deficit.

He stated that the chancellor had set new fiscal rules for this budget. They are to reduce debt as a percentage of GDP (gross Domestic Product) by 2024/25, and balance current budget.

“He set aside the headroom to achieve those targets, which is the lowest headroom any chancellor had in setting fiscal rules.”

He claimed that there wasn’t much room for error. A 1% increase in the interest rate could wipe out any chancellor.

The Bank of England’s Monetary Policy Committee is meeting Thursday to discuss whether to lift the interest rate, which was historically low at 0.1%.

Source: BBC.com

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