That’s the warning that’s just been delivered by the Office for Budget Responsibility (OBR). They argue that a new global trade war would be disastrous for the United Kingdom’s economy. OBR described such a scenario as having the potential to "almost completely remove" the headroom against Chancellor Rachel Reeves's fiscal rules. The warning comes as the Chancellor unveiled several key economic measures in her autumn budget, which aims to address various economic challenges while boosting growth.
This is the OBR’s largest downward revision to its forecasts. It has recently cut its 2025 GDP growth prediction in half from 2% to 1% compared to the October budget. Yet, it’s very positive on the outlook, increasing its forecast for the out years. Labour’s planning and housebuilding reforms go some way towards fuelling this optimism. The OBR believes that these changes will have a pretty dramatic impact on economic growth.
The OBR anticipates that these reforms will immediately stimulate the building of an extra 1.3 million homes. They hope the overall figure will rise to 1.5 million homes by 2029. This stimulus of housing development is expected to raise GDP and create a further £3.4 billion in direct tax receipts for Treasury coffers.
Despite these positive projections, the OBR cautioned that a worst-case scenario involving a tit-for-tat trade war could hinder economic growth. This warning highlights the delicate balancing act facing Chancellor Rachel Reeves as she navigates the complexities of the global economy.
Chancellor Reeves has made serious moves to address these challenges in her favour autumn budget. She has promised £2.2 billion for green defense spending and underlined that Labour is leading the way in resetting economic growth. On top of all this, the Chancellor has already announced plans to increase employer national insurance contributions, which has created quite a storm. Penny has raised taxes by £40 billion to repair the public finances after the recent spike in global borrowing costs.
"We're putting £1bn in for targeted employment support to get people back to work," said Rachel Reeves, emphasizing her commitment to fostering economic recovery.
We’ve seen some troubling responses to the budget, though. The Chancellor later defended the £4.8 billion in welfare cuts, which drew criticism from across the political spectrum. Paul Kissack, chief executive of the Joseph Rowntree Foundation, accused the Chancellor of "putting the burden of the changing world on the shoulders of those least able to bear the load."
Darren Jones voiced his concerns, stating, "I didn’t come into politics to inflict this on the most vulnerable people in our society, and I cannot vote for changes which will have this impact."
This sentiment was echoed by Steve Darling, who remarked, "This is incredibly insulting and shows the government just doesn’t understand the challenges facing people with disabilities."
Paul Johnson, the director of the Institute for Fiscal Studies thinktank, noted that there would be "six or seven months of speculation about what taxes might or might not be increased in the autumn," highlighting the uncertainty surrounding future fiscal policies.
Foes of Chancellor Reeves approach to hell and gone. She boldly claimed that her proposals would connect hundreds of thousands of people to jobs they love, at wages that would allow them and their families to escape poverty. "So I’m confident that our plans, far from increasing poverty, will actually result in more people having fulfilling work, paying a decent wage to lift themselves and their families out of poverty," she stated.