Brits are facing more mortgage misery amid warnings that the Budget will fuel inflation and squash growth.
The OBR watchdog says prices will rise faster than expected over the next couple of years as a result of the Chancellor’s tax and spend bonanza.
It has forecast that the Bank of England will respond by keeping interest rates higher for longer, pumping up costs of servicing loans.
Meanwhile, GDP growth will accelerate next year due to the Government’s splurge but fall to less than 2 per cent by the end of Labour’s term in office.
The projections are grim for millions of Brits who have been hoping for relief from mortgage strain.Â
Optimism had been growing of a Christmas boost with two quick interest rate cuts after inflation tumbled below the Bank’s 2 per cent target for the first time in three years.Â
Earnings are also now expected to fall in real terms in 2026, as national insurance hikes on businesses are passed on to workers.
The OBR has warned that mortgage rates are set to stay higher for longer Â
Inflation over the next couple of years will be higher, ‘reflecting the impact of this Budget’, the watchdog added
The OBR expects the Bank of England will respond by keeping interest rates higher for longer, pumping up costs of servicing loans
GDP growth will accelerate next year but fall to less than 2 per cent by the end of Labour’s term in office, new forecasts show
Borrowing for the next five years will be a cumulative £142billion higher than previously forecast, according to the Office for Budget Responsibility
The OBR said it had made its pre-measures assessment last month.
‘The substantial fiscal easing in this Budget, boosting demand and borrowing, was not likely to have been fully anticipated by market participants at this time,’ the report said.Â
‘We have therefore increased our Bank Rate and gilt rate forecasts by a quarter percentage point over the five-year period in our post-measures forecast.’Â
The Chancellor was accused of ‘battering’ the businesses that can deliver a bigger economy by raising taxes by £40billion.
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And Paul Johnson, director of the Institute for Fiscal Studies, said Ms Reeves was ‘boosting growth immediately… but hindering growth later on’.
The OBR upgraded the GDP outlook for this year from 0.8 per cent to 1.1 per cent and for 2025 from 1.9 per cent to 2 per cent.
Rachel Reeves was accused of ‘battering’ the businesses that can deliver a bigger economy by raising taxes by £40billion
The OBR is forecasting a significantly different economic future from the one Labour inherited from Rishi Sunak (pictured today)
But for 2026 it is downgraded from 2 per cent to 1.8 per cent and for 2027 from 1.8 per cent to 1.5 per cent. It will be 1.5 per cent again in 2028, downgraded from 1.7 per cent, edging up only slightly to 1.6 per cent the following year.
Mr Johnson said it was ‘pretty disappointing stuff’.
The OBR said: ‘Budget policies temporarily boost output in the near term but leave GDP largely unchanged in five years.’
It said the Chancellor’s Budget policies, including her £25billion raid on employer national insurance, would hit employment, while her spending splurge could ‘crowd out’ private investment.
The OBR said Ms Reeves’s plan ‘slows the pace of deficit reduction’.
Borrowing for the 2024/25 financial year is expected to climb to £127billion compared to a previously forecast £87.2billion. By 2028/29 it will have come down, but only to £71.9billion. In March the OBR predicted borrowing would fall to £39.4billion by then.
Charlie Mullins, Pimlico Plumbers founder and chairman of WeFix, said: ‘I and many others were expecting businesses to get a good kicking from the Chancellor, and she didn’t disappoint.
‘Capital gains tax up, wages up and the cherry on top – about £500 per employee on national insurance. They don’t get it.
‘Promising more money for health, education and bombs and guns, but battering the machine that makes the money.
‘The Budget might balance on Rachel Reeves’s spreadsheet, but in the real world, it’s not possible to grow the economy by battering small businesses.’