Chancellor Jeremy Hunt is scheduled to deliver his budget to the House of Commons on March 6 (Wednesday). Simultaneously, the Office for Budget Responsibility (OBR) will release updated forecasts for the economy and public finances.
The forecasts provided by the OBR for the broader economy significantly influence the projections in public finance. Key economic indicators such as inflation and the overall size of the economy play crucial roles in forecasting tax revenues and certain areas of expenditure, such as welfare and debt interest. Ahead of the budget, speculation has centred around potential tax reductions proposed by the Chancellor. Both the Prime Minister and Chancellor have indicated their inclination towards implementing tax cuts. Reductions in personal taxes like income tax and National Insurance contributions have been deliberated as potential measures.
Tax cuts must adhere to the Chancellor's objectives for government borrowing and underlying debt (excluding the Bank of England's net debt). These targets are primarily centred on the fifth year of the forecast, anticipated to be 2028/29, and were both being achieved in the OBR's November 2023 forecast.
Since the onset of 2022, the UK economy has experienced stagnation, witnessing a decline in GDP during the final two quarters of 2023. However, there is optimism regarding a modest return to growth in 2024, primarily driven by an improving outlook for inflation. In its assessment in early February, the Bank of England projected GDP growth of 0.25% for 2024 and 0.75% for 2025.