PRESS RELEASE : Autumn Statement – PwC comments on the economic outlook [November 2022]

The press release issued by PWC on 17 November 2022.

Barret Kupelian, senior economist at PwC, comments on the Autumn Statement:

“We knew it wouldn’t be pretty, but today’s Autumn Statement demonstrates just how challenging the UK economic situation is, with the policies announced marking a return to Treasury orthodoxy. The Chancellor today announced a large fiscal consolidation to the tune of £55 billion, but it is his specific choices about both the form and the timing of when his policies will be delivered that didn’t make his statement.

“First, he decided to shoulder c.55% of the fiscal consolidation on spending cuts. The philosophy adopted by the Chancellor was similar but not as extreme to what George Osborne had followed in the Emergency Budget in 2010 where he chose to focus around three quarters of the policy decisions on spending cuts. Despite focusing on spending, the OBR estimates the tax revenue to GDP ratio will be at its highest sustained level since World War II, to almost 45% by FY 2027/28. Second, the overwhelming large proportion of the spending decisions come into effect in FY 2025/26, which is after the life of the current Parliament (see chart).

“The fiscal implications of the policy choices made in the Autumn Statement depend on how the economy fares in the future. On this, our high-level observation on the economic backdrop assumed by the OBR is that it is gloomy in the short-term but brighter in the medium-term. Specifically, the OBR assumes that there will be a recession next year, coupled with inflation. In practical terms this means economic output will return to pre-pandemic levels by the end of 2024, which is a significantly worse performance compared to all other G7 economies. The impact on the labour market is for unemployment to increase by half a million, followed by a gradual decrease in the subsequent years.

“Soberingly, this means that the combined impact on households will be to erode real household disposable incomes by a cumulative 6.5% relative to 2021 levels. This type of contraction has never been recorded in Britain’s post war history.

“On a more hopeful note, the OBR assumes financial markets’ forecasts on the path of interest rates, which are higher than those of professional forecasters. If the view of professional forecasters prevails, then this could mean lower debt repayments than those forecast by the OBR”.