CHANCELLOR Jeremy Hunt is on course to miss his fiscal goals due to a weaker growth outlook than forecast by the UK's budget watchdog, an investment bank has said.

According to Sanjay Raja, senior economist at Deutsche Bank, the Office for Budget Responsibility's (OBR) GDP growth forecasts are too optimistic. Last week, the OBR said the economy is in a recession right now and will shrink 1.4 per cent next year.

However, growth will rebound sharply after 2024, with the economy expanding over two per cent each year until 2027.

The swing from contraction to expansion is based on rosy assumptions about productivity growth, which since the financial crisis, has been underwhelming in Britain.

Raja said: "Under our own growth forecasts (and weaker potential growth assumptions), the chancellor will likely miss his target of getting debt to GDP down in 2027/28."

"All of the Chancellor's headroom will likely be wiped away, with debt- to- GDP rising by 0.3pp in 2027/28 instead,"

he added.

Hunt last Thursday tweaked the UK's fiscal rules to get debt as a share of the economy falling and capping borrowing to fund day-to-day spending at three per cent in five years. The move created some room to borrow in the short term to offset the damage of the coming recession, expected to last between one and a half and two years.

Deutsche Bank's lower growth forecasts mean the government would collect less tax revenue than the OBR expects, raising borrowing and likely breaking Hunt's new rules.

The Treasury did not comment.

(c) 2022 City A.M., source Newspaper