2023 will be a very difficult year, OBR member warns MPs

David Miles said the impact of rising interest rates and inflation will cause pressure next year but they are predicted to turn a corner in 2024.

MPs were warned that 2023 is going to be a very difficult year for households (PA) (PA Wire)

The official UK economic forecaster has warned MPs that “2023 is going to be a very difficult year” for households as bills continue to rise.

Office for Budget Responsibility (OBR) committee member David Miles issued the stark warning days after the body forecast the UK faces a recession lasting more than a year.

Mr Miles said the impact of rising interest rates and continued inflation will cause pressure next year, but they are predicted to turn a corner moving into 2024.

Speaking to the Treasury Committee, the economist said: “2023 is going to be a very difficult year, very likely, but the years after it will not be quite as bad.”

Nevertheless, the forecasting body’s latest economic forecasts still appear more optimistic by those revealed by the Bank of England earlier this month.

OBR chair Richard Hughes said its longer term growth projections are more positive as interest rate expectations and energy price futures declined between the two forecasts.

The OBR also said it is predicting that more people will use their savings to support spending habits despite continued cost-of-living pressures.

Mr Hughes also told MPs on the committee that governments should not make fiscal decisions without an “up-to-date economic outlook”, following the economic fallout of former prime minister Liz Truss’s mini budget.

Ms Truss and former chancellor Kwasi Kwarteng came under fierce scrutiny in September after they announced a raft of tax cuts and spending measures without economic forecasts.

The pair told Mr Hughes on September 7 that they would not seek economic forecasts for a fiscal announcement on September 23.

However, concerns over the unfunded nature of the fiscal announcement and a lack of clarity over the economic outlook caused the pound to slide to a record low against the US dollar.

Ultimately, the economic turmoil contributed to the short tenure of the Truss government, with the spending plans largely reversed by new chancellor Jeremy Hunt.

On Tuesday, Mr Hughes said: “The committee in its own reports has commented on the growing tendency in UK fiscal policy making for major policy announcements to happen without forecasts.

“Good practice as defined by anyone, not just us but international institutions, would say you shouldn’t make fiscal decisions without them being informed by an up-to-date view of the economic outlook.”