Britain budget office nominee sees higher rates, weaker growth outlook

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Britain budget office outlook

Highlights

OBR chair nominee Haskel warns that Britain's exposure to surging energy prices could embed high inflation for several years.
Haskel's medium-term forecast anticipates higher interest rates and weaker GDP growth than consensus, citing poor fiscal position after post-pandemic and Ukraine war debt spikes.
Haskel highlights persistent productivity headwinds from a less flexible post-COVID labour market and upcoming tighter employment regulation likely to dampen growth.

Nominee outlines inflation and growth risks

As reported by Reuters, Haskel told lawmakers in written answers that Britain's exposure to surging energy prices could cause high inflation to become embedded in the economy for several years.

He says his medium-term forecast points to somewhat higher interest rates and weaker GDP growth than most analysts expect. In a public hearing with parliament's Treasury Committee, he also says Britain is not in a very good fiscal position after debt rose sharply as a share of output following shocks including the COVID pandemic and the war in Ukraine.

Haskel's nomination to chair the Office for Budget Responsibility, or OBR, still requires approval from the Treasury Committee. The agency has been without a chair since Richard Hughes stepped down after the OBR prematurely published its Economic and Fiscal Outlook, including details of finance minister Rachel Reeves' 2025 budget, in November.

Productivity debate and policy implications

Haskel says he remains hopeful that growth in artificial intelligence can help improve Britain's weak productivity record, even as he defends the OBR against criticism that it has been too optimistic on productivity and too slow to downgrade its forecasts.

He says the OBR is right to be cautious and that institutions such as the budget watchdog should set a high bar before changing key productivity assumptions, partly to avoid political pressure. He adds that problems with official data during the pandemic reasonably made forecasters wary of making swift changes to long-term projections.

At the same time, Haskel says he is still concerned about productivity headwinds from Britain's labour market, which he does not believe has regained its pre-COVID flexibility. He also says tighter employment regulation being introduced by the government is likely to weigh on growth, although the details are not yet clear enough to quantify.

In our earlier article, we looked at how high fossil fuel prices are accelerating demand for household clean-energy upgrades in the UK, and how new financing models are making solar panels, batteries and other retrofits more accessible. We also noted that consumer trust issues in the retrofit market—especially around heat pumps—remain a key bottleneck even as banks, government incentives and private capital expand funding for home energy improvements.

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