UK’s Reeves painted bleak economic picture despite having better news, OBR letter shows
MANCHESTER, England (Reuters) – British finance minister Rachel Reeves painted a bleak picture of the economy this month while giving better-than-expected forecasts for the public finances, a letter from the financial watchdog showed on Friday.
In a speech early Nov. 4, Reeves appeared to be laying the groundwork for breaking a political promise and raising income tax rates, citing a “weaker than previously thought” productivity performance.
In a letter published on Friday, the head of the Office for Budget Responsibility said he had also provided the government with forecasts showing the decline in productivity had been offset by increases in real wages and inflation.
The letter raises questions about the government’s communications ahead of Wednesday’s budget. November saw huge swings in the British government bond market as investors grappled with the government’s changing stance on tax increases.
OBR chairman Richard Hughes said in his letter that the government had received forecasts sent to the exchequer in September and October showing a 0.3 percentage point decline in underlying productivity growth.
But other aspects of the forecast countered the decline in productivity in a way that wasn’t apparent in Reeves’ speech.
“Our Round 1 forecast was also a complete forecast and therefore included increases in real wages and inflation that offset the impact of the decline in productivity on incomes,” Hughes wrote.
In response, the finance ministry said it would not delve into the OBR’s processes or speculate on how this relates to internal decision-making in creating the budget.
“We take budget security extremely seriously and believe it is important to maintain a dedicated space for Treasury-OBR policy and forecast discussions, so we welcome the OBR’s confirmation that this will not become regular practice,” the OBR’s letter on the process said.
A spokesman for British Prime Minister Keir Starmer said the government did not accept that it had misled the public or markets.
“We have made fair, necessary choices to build a stronger, fairer country, where living standards rise, child poverty falls and public services are renewed in every corner of Britain,” he said.
On Thursday Hughes said he would resign if Reeves and MPs demand it, after the OBR released budget details prematurely, roiling markets and sparking outrage in parliament.
(Reporting by Andy Bruce; Editing by Aidan Lewis)
