UK Treasury and BOE Diverge by £112 Billion Economic Outlook

In their outlooks on the economy, the Bank of England and the UK Treasury are approximately £112 billion ($133 trillion) apart.

On Wednesday, the Office for Budget Responsibility released new forecasts. It predicts that the British economy would be 5% larger in real terms by 2025 than at 2022. In its February assessment, the central bank found no growth in output over the same period. This is still lower than the level that Covid had reached.

The difference between them amounts to approximately £112 billion per year.Different outlooks are used to base fiscal and monetary policiesThe UK budget watchdog is more optimistic than the central bank

“It’s slightly odd — it’s not clear if it is damaging — but it certainly seems odd that our monetary and fiscal policies are made on the basis two extremely different economic forecasts,” Paul Johnson (director of the Institute for Fiscal Studies) said during a briefing Thursday to discuss the budget measures announced this week by Chancellor of Exchequer Jeremy Hunt.

This discrepancy can partly be explained by competing views about how fast the economy can grow without increasing inflation. The OBR projects potential growth at 1.7% per year, which is a full percentage point more than the BOE and higher than many private-sector economists.OBR Relatively Positive About Medium-Term GrowthBOE forecasts are finalized in 2025. Figures assume that there will be no changes in 2026 or 2027

A significant improvement in the economic outlook has been made since November. The chancellor received a tax windfall, which he used to increase child care affordability and provide tax relief for businesses.

The BOE’s pessimistic assessment regarding supply growth has made it difficult for policy makers to relax in their efforts to reduce double-digit inflation to 2%.