OBR downgrades GDP growth estimate

years, rather than making a partial recovery as we assumed in November.”

While the watchdog expects the increase in migration to help drive growth and lower public borrowing over the next five years in one of the “biggest changes” to its economic forecast, OBR officials said it would also pile more pressure on schools, hospitals and other public services. It also downgraded its estimate of growth in GDP per person.

Tom Josephs, an OBR official, said: “Migrants will be using public services, but there’s no automatic link between population and public spending. That means that additional population doesn’t increase public spending, but it does increase the pressure on departmental spending.”

The OBR also noted that recent changes to population estimates by the Office for National Statistics were driven by increases “more concentrated in lower-participation groups” such as under25s and women. The OBR added that Mr Hunt’s decision to freeze tax thresholds for six years had reduced incentives to work.

The tax and spending watchdog expects the cuts to National Insurance, combined with child benefit and welfare reforms last November, to bring the equivalent of 200,000 more people into the workforce. However, the OBR said that if income tax thresholds had not been frozen for six years, the increase would have been the equivalent of 300,000 extra workers.

The OBR now believes that labour participation – the share of people either in work or seeking a job – will continue falling from its pre-pandemic peak of 64.3 per cent to 62.8 per cent by 2028. This is half a percentage point below its November forecast.

It said: “One of the biggest changes to our economy forecast is an increase in the size and growth of the UK population. But higher and rising levels of inactivity offset its impact on the overall size of the workforce, leaving our forecast for the level of GDP in five years virtually unchanged from the autumn, and the level of GDP per person slightly lower.”