Office For Budget Responsibility - Forecast Evaluation Report

20th October 2023

Presented to Parliament pursuant to Section 8 of the Budget Responsibility and National Audit Act 2011 - October 2023.

The focus of this year's Forecast evaluation report (FER) is the performance of our forecasts for the financial year 2022-23. The almost unprecedented fall and recovery in the economic activity caused by the covid pandemic in the previous two years, was followed in 2022-23 by the Russian invasion of Ukraine in February 2022. The war led to a spike in global gas (and oil) prices that compounded UK inflationary pressures that had already been building due to supply bottlenecks and a tightening labour market in the wake of the pandemic.

1.2 Against this backdrop, our March 2021 forecast (made a year before the Russian invasion) and March 2022 forecast (made within a few weeks of the invasion) significantly underestimated the strength and persistence of inflation, and overestimated the level of
economic activity. The upward surprise in inflation greatly exceeded the shortfall in GDP and led to nominal GDP growth - the key determinant of tax receipts - outpacing both March forecasts. This led to significantly higher nominal tax receipts than we had expected.

But higher inflation and the associated fiscal and monetary policy response, in the form of welfare and energy costs support and higher Bank Rate, pushed up spending and debt interest by even more. As a result, we underestimated borrowing in 2022-23 which, at £128.4 billion (5.1 per cent of GDP) was £21.5 billion (0.8 per cent of GDP) above our March 2021 and £29.3 billion (1.2 per cent of GDP) above March 2022 forecasts.

Read the full report HERE
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