Five takeaways from the Autumn Statement

Martin McIvor · 17 November 2022

Our economics expert Martin McIvor picks out five significant takeaways from today’s Autumn Statement.

1. We are now entering a prolonged recession

New official forecasts from the independent OBR confirm that the UK economy is now entering a recession that will leave output below pre-Covid levels until 2024.

Line graph showing UK GDP since 2003, and that the OBR’s forecast growth will be slower than previously expected.

2. Inflation may slow but high prices won’t go away

Further steep increases in the cost of living are expected in 2023, with the OBR’s forecasts for both RPI and CPI measures both painfully high at 10.7% and 7.4% respectively. After that, inflation is expected to briefly dip negative before stabilising, but that leaves most of this and next year’s price rises locked in.

Line graph showing UK inflation since 2008 and forecast inflation. This continues to rise  until next year before levelling out.

3. Average wages aren’t keeping up

Average weekly earnings across the economy are thought to have risen 5.9% this year with another 4.2% expected next year. (Note that this reflects job moves, performance elements and additional hours as well as regular pay awards, which are currently running at around 4%).

But this is nowhere near enough to compensate for the inflation we are now seeing. Adjusted for CPI or RPI, average hourly pay rates will take years to recover to pre-COVID levels, let alone those seen before the financial crisis.

Graph showing UK real hourly earnings since 2008. This remains below the pre-2008 financial crisis level and is projected to fall further next year.

4. The public sector will be particularly squeezed

Departmental and public service budgets have been put under severe strain as a result of the runaway inflation we are now seeing, which has dramatically devalued the budgets allocated in the Spending Review at the end of last year. Except for some additional funds for the NHS and schools, paid for by cuts to aid spending and planned care reforms, the Autumn Statement made no moves to offset this.

In addition, the Chancellor announced a further tight squeeze on public sector budgets from 2024 onwards. Assuming NHS and schools continue to take a growing share of total expenditure, this will likely equate to further real terms cuts in many areas.

Bar graph showing spending cuts between 2020-2024. WIth schools and NHS budgets protected, other public service budgets likely to be squeezed further.

5. Vital investments are being scaled back or delayed

The Chancellor has frozen capital spending in cash terms from 2024, cutting tens of billions from investment plans previously set out in last year’s Spending Review.

This entails real terms cuts to capital spending which are likely to hit progress with modernisation of key infrastructure including energy, transport and broadband, as well as limiting scope for further increases in R&D funding, modernisation of public sector IT and addressing repair and maintenance backlogs in schools and hospitals.

Even more seriously, the OBR has wiped billions off forecast business investment, which will weaken innovation, productivity, growth, transition towards net zero and the public finances for many more years into the future.

Martin McIvor is a research officer at Prospect, specialising in economics.

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