Treasury watchdog prepares UK economic forecast for emergency budget

The Office for Budget Responsibility confirmed on Friday that it would be ready to publish an updated forecast for the UK economy and public finances by the middle of next month, in time for an emergency budget.

In a letter to MPs, the budget watchdog said it had been working on a forecast since late July and could release one that “meets legislative requirements” ready for September 14 or September 21.

The letter will put pressure on the two Conservative leadership candidates, Rishi Sunak and Liz Truss, to announce their planned support for the economy and energy bills alongside an independent economic assessment.

Truss’s team has so far said they would rather announce tax cuts, removal of green levies on energy bills and other unspecified support without OBR input, citing as preceding the many support packages that were announced during the pandemic and more recently by Sunak when he was chancellor.

The OBR letter highlights reasons why the new Prime Minister and Chancellor may decide to wait a few weeks for a more considered forecast. While the budget watchdog said it could meet the standards required by law in time for an emergency budget, Richard Hughes, its chairman, said these fell well short of the level of detail that was producing normally.

“We would necessarily have to reduce our published material,” Hughes wrote, adding that this would mean the forecast “would be shorter, with less detailed breakdowns of some economic and fiscal aggregates, less commentary on smaller elements of the forecast, and less historical and international comparisons that allow the forecast to be placed in context”.

If she wins the leadership election, Truss and her new Chancellor, expected to be Kwasi Kwarteng, the current Secretary of State for Business, Energy and Industrial Strategy, would not be required to ask the ‘OBR to produce a forecast in September. But, by law, treasury ministers must produce two independent forecasts each fiscal year.

In practice, this would imply that the new chancellor would have to request an OBR forecast later this autumn.

Hughes said any forecast in September would be able to assess the impact of tax changes proposed by the new Prime Minister.

But in what the Truss team will see as a sting in the tail, he added that “where political announcements involve the reversal of a previously announced measure. . . it would be simpler to reflect its cost and economic impact”.

Truss is proposing to reverse National Insurance and corporation tax hikes, and Hughes’ words show the OBR has no intention of declaring that its tax cut proposals will spur growth at medium term, contrary to Truss’ claims. When the fiscal watchdog assessed the imposition of these taxes, it said they would impose only a “modest drag on GDP over the medium term”, so it could not suggest that their removal would increase growth rates.

Mel Stride, Treasury committee chairman and Sunak supporter, welcomed the OBR’s response.

“Given the very significantly increased economic challenges since the last OBR forecast in March and the significant measures likely to be presented in September by whoever becomes our next Prime Minister, it will be vital that the OBR is requested by whoever who is chancellor in the new government to issue as comprehensive a forecast as possible at this time,” he said.