When the Liz Truss camp floated the idea of side-lining the Office for Budget Responsibility for her government’s first fiscal statement, the argument went that the announcements would be targeted at the energy crisis – and they couldn’t wait. As anticipation around the fiscal event grew, and it became clear that it would include much more than an energy update, MPs started to suspect foul play – that this was an overtly political attempt to avoid scrutiny of Kwasi Kwarteng’s growth plans and spending splurge.
This suspicion is only going to grow now that the OBR has confirmed that draft forecasts were presented to the Chancellor on his first day in the role – and its offer to provide updated forecasts to include the massive energy subsidies was outright rejected.
Cue damage limitation. This morning Truss and Kwarteng invited the head of the OBR into Downing Street to discuss the fallout from last week’s announcements (and lack of forecasts) in the markets. While the pound has recovered to pre-mini-Budget levels – currently around $1.12 – the UK has become an outlier for government borrowing costs. Fears are growing around mortgage offers – hundreds of which have already been pulled from the market – and what a much faster interest rate rise (expected by markets to be 1.5 per cent at the next MPC meeting) will mean for the UK’s housing market.
This morning Truss and Kwarteng invited the head of the OBR into Downing Street to discuss the fallout from last week’s announcements
It’s not uncommon for the OBR and the Treasury to communicate: the former works closely with the latter, and other government departments, to prepare for major fiscal events such as the Budget. But these are not usual circumstances. Having waged war on the OBR – as well as the Bank of England and the Treasury – in their first few weeks in the role, Truss and Kwarteng are in the strange position of being desperately reliant on the forecaster to help put markets at ease.
As I noted this morning on Coffee House, this meeting with the OBR is the first sign of a mea culpa from Truss, who seems to be realising that tossing out OBR forecasts played a large role in losing market confidence. It’s a U-turn she can swallow, unlike rolling back her tax cut plans.
But Truss now needs those forecasts to work in her favour – to show that her tax cuts and growth plan can revise medium-term figures upwards. Of course, the OBR is independent – and perhaps more emboldened than ever (the mere hint from government of undermining its status would send the markets into further chaos). After the meeting, which lasted for just under an hour this morning, it was confirmed that the OBR will provide forecasts for the Chancellor’s medium-term fiscal plan. But there’s no indication that this will be an exercise aimed at helping the government. The OBR’s statement on the meeting doubles down on its independence: ‘The forecast will, as always, be based on our independent [judgement] about economic and fiscal prospects and the impact of the government’s policies.’
Since the meeting, the government has recommitted to 23 November for the next fiscal update. The OBR will provide the Treasury with the ‘first iteration’ of its forecasts in a week. Though pressure has been mounting for the government to act quickly to reassure markets of its commitment to fiscal discipline, it seems Truss and Kwarteng plan to stick to their original timeline: a suggestion that they are still expecting markets to calm down in the coming weeks. It’s an optimistic assumption.
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