OBR forecasts and the Spring Budget

See the latest OBR forecasts and Spring Budget concerning the UK economy, policy changes and impact on households.

Economic outlook

The OBR (Office for Budget Responsibility, the UK’s official economic forecaster) has issued its latest Economic and Fiscal Outlook report, superseding the November 2023 edition.

The UK economy entered recession at the end of 2023, but this situation is not expected to persist, according to OBR.

Real GDP will return to growth in 2024 and real GDP per-capita will return to growth in 2025 (table A1). Some data suggests that growth is already returning.

Energy prices are expected to remain under control, below previous forecasts - although prices remain unusually high and the possibility of a new price shock is not discounted (chart 2.2, box 2.2).

Sterling value is also expected to be a little higher than previously, which would help to cushion the impact of global commodity price changes (chart 2.3).

Inflation has fallen slightly faster than previously expected – the CPI now stands at 4.0% year on year. Inflation is expected to fall to around the 2.0% target rate by Q2 2024, then level off (chart 2.4).

Food price inflation is likewise expected to decline, reaching about 2.0% by the end of 2024, then level off, hovering at 2-3% through the rest of the forecast period (chart 2.5).

As in the November edition, OBR does not expect a broad reversal of recent food price inflation. These views are in line with IGD’s forecasts from January 2024.

Population estimates have been revised upwards, mainly to account for immigration. However, labour force participation has been revised downwards (charts 2.8 and 2.13). Poor health is still a key reason for non-participation in the workforce.

Average earnings growth will fall from a record 7.0% in 2023 to 3.6% in 2024. This will still exceed anticipated inflation, so real earnings growth will continue (paras 2.37 and 2.38).

The outlook for real household disposable incomes has improved compared to the previous forecast in November. This is mainly driven by lower inflation and tax changes rather than better wages and benefits (chart 2.16).

Policy changes relevant to food and grocery

The Chancellor has announced the Spring Budget, based on the OBR report.

The major policy change in the Spring Budget was trailed well in advance – a 2p reduction in National Insurance (NI) contributions for both employees and the self-employed – although employer NI payments will remain unchanged (paras 3.7 and 3.9).

A new duty will be introduced for “vaping” products, starting in October 2026 (para 2.43). Initial levels will be from ￡1 per 10ml of liquid for nicotine-free products, with levels increasing for products with nicotine (para 5.31).

Tobacco duty will also be increased, to ensure that a price differential between vapes and tobacco remains in place (para 2.44).

Fuel duty will be held at the current level (para 3.36) and alcohol duty will also remain frozen. To simplify administration, the use of alcohol duty stamps will be wound up (para 5.48).

The turnover threshold for VAT registration will rise from ￡85k per year to ￡90k per year (para 5.101) from April 2024, to simplify operations for SMEs.

The Autumn Statement included a new provision for permanent “full expensing” of capital investment by businesses.

The Spring Budget suggests that this might be extended to leased as well as purchased capital equipment, although not until the fiscal situation improves.

Other key themes remained similar to those pursued previously – supporting Research and Development and investment, encouraging capital investment, building productivity, blocking tax evasion and flattening regional wealth disparities.

Government debt remains exceptionally high at about 98% of GDP - using the most optimistic measure of indebtedness - which limits the Chancellor’s room for manoeuvre (table 1.3).

Finally, the Spring Budget provides more detail on the planned Carbon Border Adjustment Mechanism. This will be introduced from 1 January 2027 and will apply to goods imported in the aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron & steel sectors. The details will be subject to public consultation later in 2024.

IGD Viewpoint:

News that household finances may turn out better than previously expected is clearly good news for any consumer-facing business, including food and drink.

However, households remain under pressure and have lost a lot of ground, financially, over recent years.

The measures announced in the Spring Budget will also help to address the recognised weaknesses of the UK economy, but the task is huge.

Rebuilding the economy and paying down the sovereign debt will be a very slow process, probably taking several Parliaments.

As in previous statements, the government seems to be preoccupied with other sectors (paras 5.113 – 5.129).

The food and drink industry receives limited attention. Other than measures to support BWS and ongoing support for hospitality, there are only two specific items.

The government has promised ￡5m for an “agri-food launchpad” in Wales, but it is not clear exactly what this might be (para 5.98).

(Independently, the Welsh government has recently announced controversial environmental plans that may affect Welsh farmers).

The Spring Budget also refers to funding provided for agricultural productivity, innovation and drainage – but it is not clear whether this is new money, or something already announced (para 4.24).