UK now in recession, OBR confirms: Budget 2022

Chancellor Jeremy Hunt has confirmed that the UK is officially in a recession, with economic growth due to fall by 1.4% next year, according to OBR forecasts announced during today's Budget.

The OBR judges that global factors are the primary cause of current inflation, Hunt announced.

According to the OBR's figures, UK inflation will reach 9.1% this year and 7.4% next year, however inflation is expected to fall sharply from the middle of next year.

UK GDP will grow by 4.2% this year but fall by 1.4% this year during the recession. The OBR then forecasts GDP growth of 1.3%, 2.6%, and 2.7% in the three years after.

Hunt also announced two new fiscal rules, stating: "The first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. The second, that public sector borrowing, over the same period, must be below 3% of GDP.

"The plan I'm announcing today meets both rules. Today's statement delivers a consolidation of £55 billion and means inflation and interest rates end up significantly lower."

Marcus Brookes, chief investment officer at Quilter Investors, commented: “Today’s Autumn Statement has painted a bleak picture for the UK with a black hole of £54bn being plugged with a mixture of spending cuts and tax rises. We have come a long way since the mini budget of just eight weeks ago when the Office for Budget Responsibility was cast to the side-lines. It has equally produced a glib outlook for a UK economy that is already in recession. The OBR has forecast peak inflation in 2022 with slow moderation going forward. It is, however, a lagging indicator and the economy will continue to slow in 2023.

“Markets originally reacted well to the steady hand of Jeremy Hunt. They will continue to give him the benefit of the doubt and see the impact of this plan, however, there is also a chance that they see this as an overcorrection and that the measures could stifle what economic growth was present. The government will be hoping that these measures are merely temporary in order to stabilise the ship ahead of an election in just two years’ time.

“Hunt made clear that fiscal and monetary policy must work together. However, given interest rate expectations have moderated of late and economic growth turning negative, and remaining sluggish after getting back to positive territory in 2024, the Bank of England may need to pause or pivot in monetary policy sooner than we may have previously expected. Monetary and fiscal policy will need to adapt quickly or find themselves out of lockstep in 2023.

“For investors, the UK remains somewhat of a difficult place to judge right now. We are not necessarily at the end of the train of bad news and with a prolonged recession priced in we may need to wait for a more sustained downward path of inflation. However, fixed income looks more attractive than it has in quite some time, while quality companies with resilient revenue streams will outlast any recession that does take root. Being selective with the opportunity set will be key, but it is important investors are not put off by the bleak news and simply sit this period out.”