UK faces $26.8 billion public finances gap from productivity cut, FT reports
LONDON (Reuters) – Britain’s budget watchdog is expected to cut its forecast for significant productivity gains by a higher-than-expected 0.3 percentage point, signaling further pressure on the government ahead of next month’s budget, the Financial Times reported.
A Financial Times report on Monday, citing people familiar with the matter, added that analysts believe the cut by the Office for Budget Responsibility could mean a shortfall in public finances of more than 20 billion pounds ($26.84 billion).
The OBR has identified the productivity trend outlook, measured as output per hour worked, as central to its economic forecasts, underpinning its fiscal forecasts. He called it “one of the most important and uncertain forecast decisions” in his economic and fiscal outlook in March.
A Treasury spokesman declined to comment on the speculation ahead of the OBR forecast to be published on November 26, when finance minister Rachel Reeves will present the government’s budget. The OBR did not immediately respond to Reuters’ request for comment.
Reeves acknowledged the expected downgrade of the OBR’s rating and said it was related to the period before Labor came to government.
The cut will increase fiscal pressures ahead of the budget, where it is expected to raise tens of billions of pounds in taxes to stay on track to meet its fiscal targets and avoid a loss of confidence in the bond market.
In the government’s first budget since coming to power last year, Reeves announced a huge increase in public investment in infrastructure and energy, financed by increased borrowing and taxes on employers.
($1 = 0.7451 pounds)
(Reporting by Mrinmay Dey in Bengaluru and Alistair Smout in London; Writing by Muvija M; Editing by Sharon Singleton and Chizu Nomiyama)
