Key facts
- The OBR will factor persistent inflation into its updated forecasts.
- The OBR's forecasts guide government public spending limits.
- The forecasts are closely watched by financial markets and politicians.
- The OBR has adjusted its modelling toolkit for inflation pass-through.
- The last energy shock led to higher inflation, more public spending, and greater government borrowing than forecast.
Britain's budget watchdog, the Office for Budget Responsibility (OBR), announced it will incorporate the unexpected persistence of inflation into its upcoming forecasts. This adjustment follows the 2022 energy price shock and the recent Iran war, which the Bank of England has indicated could lead to higher inflation and weaker growth. The OBR's updated forecasts will influence the government's fiscal planning, public spending limits, and are closely monitored by financial markets and politicians. The watchdog has refined its modelling toolkit to better account for inflation pass-through effects, learning from the impact of the previous energy shock on public spending and debt.