The UK economy is on the verge of a recession, with inflation set to fall to 2.9% by the end of the year, Jeremy Hunt told Budget magazine on Wednesday.
The Office of Budgetary Responsibility (OBR) predicts an “improving outlook” for public finances, the chancellor told MPs in the House of Commons.
The OBR initially painted a bleak outlook in November, predicting a rise in debt and a contraction in GDP in 2023. However, falling wholesale energy prices and declining inflation have helped improve the Treasury’s position in recent months.
Initial projections indicated the economy would enter recession in 2022 and contract by 1.4 percent in 2023.
But new forecasts show that the economy is poised to avoid a technical recession – that is, two quarters of contraction in a row – and contract by 0.2 percent overall this year.
It is then expected to rise by 1.8 percent in 2024 and 2.5 percent next year before growth slows.
Here’s everything you need to know about UK inflation and what the latest forecasts mean for the economy and your money.
What is inflation?
Inflation is a measure of how much the prices of goods and services rise over time. It is one of the most important economic indicators for consumers as it affects their purchasing power, affecting everything from fuel prices to mortgages, as well as things like the price of train tickets and the cost of groceries.
Inflation is usually measured by comparing the cost of things today and a year ago. This average rise in prices is called inflation.
If the inflation rate is 10 percent, that means prices are on average 10 percent higher. For example, a loaf of bread that cost you £1 a year ago now costs £1.10.
A little inflation can be good for the economy as it encourages shoppers to buy earlier. When prices rise, consumers want to buy now rather than pay more later, which increases demand in the short term and can increase productivity.
However, high inflation means people can buy less for the same money. This means they may have to spend more on groceries, utility bills, and fueling their car.
How is inflation measured?
In the UK, inflation is measured by the Office for National Statistics (ONS), which produces three main estimates of inflation: the consumer price index (CPI), the consumer price index including housing costs (CPIH), and the retail price index (RPI). ). .
To calculate the Consumer Price Index (the most commonly used number), the ONS looks at the prices of thousands of goods and services in the UK and compares them from year to year.
The goods used in the basket to compile various measures of price inflation are reviewed each year. For example, smart speakers were added to the verified list in 2019 to ensure that the measurement of the cost of living in the UK reflects the population’s spending habits.
When will inflation drop?
The current inflation rate in the UK is 10.1 percent.
Rishi Sunak has promised to halve inflation by the end of 2023, but that has already been predicted. The Bank of England expects inflation to fall sharply from the middle of the year for three main reasons.
“Firstly, energy prices will no longer rise as fast. The government has introduced a system that maximizes electricity bills for homes and businesses for six months,” the bank said in a statement.
“Secondly, we do not expect the prices of imported goods to rise as quickly. This is because some of the production challenges that companies have been facing are starting to recede.
“Third, we expect demand for goods and services in the UK to decline. This should lead to the fact that the prices of many things will not rise as quickly.”
The Bank of England’s inflation target is 2 percent. To do this, he raised interest rates.
On December 15, 2022, interest rates were raised by 0.5 percent to 3.5 percent.
Rising interest rates mean that people face higher borrowing costs and businesses face higher borrowing rates, but higher interest rates also slow down price increases, which in the long run leads to lower inflation.
OBR’s latest forecast, released today by the chancellor, suggests inflation will fall very close to the bank’s target by the end of 2023.
Source: I News
I’m Sandra Hansen, a news website Author and Reporter for 24 News Reporters. I have over 7 years of experience in the journalism field, with an extensive background in politics and political science. My passion is to tell stories that are important to people around the globe and to engage readers with compelling content.