Prime minister Liz Truss and chancellor Kwasi Kwarteng are set to meet the chief of the Office for Budget Responsibility (OBR) on Friday to discuss the fallout following last week’s mini-budget.
Since the finance minister announced a £45bn package of unfunded tax cuts, the pound has slumped against the dollar (GBPUSD=X) and stock and bond markets have been volatile.
Truss and Kwarteng will meet with Richard Hughes, head of the budget watchdog, despite already doubling down on their fiscal measures, sending markets falling deeper into the red.
Speaking during interviews on Thursday, the pair made it clear that a squeeze on government departments was coming, with public spending remaining at levels agreed in 2021 despite inflation eating into those budgets.
Read more: Bank of England: What will the emergency action actually do?
The UK’s independent fiscal watchdog provides forecasts on the economy and public finances based on government plans.
Kwarteng has promised to publish OBR forecasts alongside a new medium-term fiscal plan on 23 November, however, he has been urged by MPs to do this much sooner.
Read more: How market chaos has impacted household finances
The Treasury said on Friday that it would benefit a key Monetary Policy Committee (MPC) meeting on 3 November if the OBR forecast can be provided earlier.
Mel Stride, Tory MP for Central Devon who also chairs the Treasury select committee, said the failure to publish the forecast led to the “unfortunate impression that the government may be seeking to avoid scrutiny”.
“The good news is clearly this is being very taken seriously because confidence in the markets needs to be regained and critical to doing that will be to go to the markets and say the OBR has carried out an independent forecast of the proposals put forward by the government and measured against reasonable and credible fiscal rules. The OBR’s view is that those rules can be met,” he told BBC’s Today programme.
Read more: What happened to the markets in the 60 minutes Liz Truss was on the radio?
“It begs the big question of what the OBR will be saying to the prime minister and the chancellor in this meeting today. I strongly suspect that it will be that the circle cannot be squared.
“You can’t come forward with multiple billions of unfunded tax cuts in a high inflationary environment with a very tight labour market and expect that along with various supply side changes, to develop the growth that’s going to pay for those tax cuts. That’s just not feasible and isn’t going to work, so there needs to be a rethink, and that will be a very difficult conversation.”
Watch: How does inflation affect interest rates?
,,,
