THE UK economy should be over “the worst of it” and extended austerity after the pandemic is “not a done deal”, it is claimed.
Robert Chote, chair of the Office for Budget Responsibility (OBR) made the comments on The Andrew Marr Show yesterday.
The economist said reported UK Government debt of more than £300 billion does not automatically have to mean a prolonged public spending squeeze. He said the UK economy is entering a recovery phase as the public health restrictions are gradually relaxed in England.
Chote said political priorities will be key to the next steps, stating: “We’re certainly going to see, temporarily, a higher amount of government borrowing. The fact that the level of debt goes up on its own doesn’t necessarily mean you have to have the sort of austerity that followed the financial crisis.
“Much more important to that is whether you have this effect of scarring of the economy. If the economy is permanently smaller then you get permanently less tax revenue.
“Do we come out of this with a much bigger debt interest bill? At the moment it’s relatively cheap for the government to borrow so hopefully that won’t be too much of a problem.
“Then also there will be political choices coming out of this. Do we want to spend a higher proportion of national income than we went in for example on health and social care?
“All of these things together will shape the fiscal challenge for the government coming out of this. A post financial crisis-style extended period of austerity is not a done deal.”
He went on: “The economy, probably at its worst last month, may have been a third or so smaller than it normally would have been in terms of the output of goods and services and people’s spending. But that should be the worst of it.”
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