THE Chancellor seemed at pains yesterday to attribute surging UK inflation to global forces, while the independent Office for Budget Responsibility declared Britain’s supply bottlenecks have been “exacerbated by changes in the migration and trading regimes following Brexit”.

Delivering his second Budget of 2021, Rishi Sunak flagged the OBR’s forecast that annual UK consumer prices index inflation will average four per cent in 2022, which is double the 2% target set for the Bank of England by the Treasury. At 3.1% in the latest available figures from the Office for National Statistics, for September, it is already way above target.

The Chancellor asked his audience to let him “begin by carefully explaining what is happening in our economy and why”.

Giving his take on the inflation issue, he declared: “The majority of this rise in inflation can be explained by two global forces.”

Mr Sunak added: “First, as economies around the world reopen, demand for goods has increased more quickly than supply chains can meet. Having been shut down for almost a year, it takes time for factories to scale up production, for container ships to move goods to where demand is, for businesses to hire the people they need.

“And second, global demand for energy has surged at a time when supplies have already been disrupted, putting strain on prices. In the year to September, the global wholesale price of oil, coal and gas combined has more than doubled.”

Mr Sunak declared “the pressures caused by supply chains and energy prices will take months to ease”.

And he claimed “it would be irresponsible for anyone to pretend that we can solve this overnight”.

Putting the finishing touches to his seeming portrayal of the inflation problem as something that was not in any significant way grown in Brexit Britain, the Chancellor said: “I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own.”

READ MORE: Tories outdo themselves with trade deal offering 0.00% boost: Ian McConnell

Mr Sunak’s only nod to the UK’s specific problems was a brief reference to the country’s heavy goods vehicle driver shortage, and the introduction of temporary visas. The Road Haulage Association has estimated the UK is short of around 100,000 HGV drivers, and highlighted the contributory impact of Brexit.

The OBR’s take on the UK’s supply bottlenecks, in the context of its inflation forecast, seemed very different from that of Mr Sunak.

It flagged the impact of the strength of the rebound in demand in the UK and internationally. And the OBR noted this had led demand “to bump up against supply constraints in several markets”.

However, while flagging global inflationary forces, the OBR declared: “In the UK, these supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit.”

It added: “Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains. These can be expected to hold back output growth in the coming quarters, while raising prices and putting pressure on wages.”

READ MORE: Ian McConnell: Tale of two cities lays bare scale of challenges facing Glasgow

The OBR also offered its analysis of the HGV driver shortage yesterday.

It said: “Shocks to labour supply are most evident in the market for heavy goods vehicle …drivers, where a 13% fall in the number of drivers in the two years to June 2021 has been exacerbated by both delays in the certification of new drivers over the past year and post-Brexit limits placed on the hiring and utilisation of qualified drivers from the EU.”

The OBR declared that it expected annual CPI inflation to peak at 4.4% in the second quarter of next year.

It warned that risks around this forecast are “tilted to the upside”.

And it added: “News since we closed our forecast would be consistent with inflation peaking at close to 5% next year. And it could hit the highest rate seen in the UK for three decades.”

These inflation projections and the context provided, and the holding back of output growth and upward pressures on prices and wages highlight the scale of the challenges facing the UK economy.

Mr Sunak seemed in ebullient form, however, as he delivered his Budget.

Following a familiar pattern, he attempted to paint the picture of the Conservatives as the party of fiscal responsibility.

Once again, in this context, he did not mention that UK public sector net debt stood at around £1 trillion when the Tories came to power in 2010, and had risen to about £1.8 trillion before the pandemic hit. Debt spiralled over this period as the Tories’ savage austerity programme proved counter-productive, bearing down on growth.

Outstanding public sector net debt is forecast to rise from £2.136 trillion in the 2020/21 fiscal year to £2.567 trillion by 2024/25 in the OBR’s latest projections.

In 2020/21, amid the coronavirus crisis, public sector net borrowing was £319.9 billion or 15.2% of gross domestic product. It is projected to be £183bn or 7.9% of GDP in the current fiscal year, £83bn in 2022/23, £61.6bn in 2023/24, £46.3bn in 2024/25, £46.4bn in 2025/26, and £44bn or 1.5% of GDP in 2026/27. These are big numbers.

The Chancellor highlighted the OBR’s raising of its UK growth forecast for this calendar year to 6.5%, from 4% at the time of his previous Budget in March.

However, this must be looked at in the context of a 9.8% drop in GDP last year.

And Mr Sunak did not flag the fact that the latest 6% growth projection for 2022 represents a downgrade of the OBR’s forecast of expansion next year, from 7.3% back in March.

So some of the improvement in the forecast for this year is just a matter of timing.

The OBR’s growth forecast for 2023 has been revised up from 1.7% to 2.1%. However, projected expansion in 2024 has been reduced from 1.6% to just 1.3%.

And sub-2% per annum growth is expected to continue in 2025 and 2026, with the OBR’s respective growth forecasts for these years being 1.6% and 1.7%.

The growth projections for 2023 and the following years in the forecast period out to 2026 are underwhelming.

Unemployment, while it is obviously a good thing that it is now expected to peak at a much lower level than had been feared at the onset of the pandemic, is projected to rise significantly from where it is currently on the International Labour Organisation measure.

ILO unemployment is expected to peak at 5.2% in the current October to December quarter. It stood at 4.5% in the three months to August, the latest official figures show.

The OBR said yesterday that it now expected “scarring” of potential output in the wake of the coronavirus pandemic to be 2%, rather than the 3% it had assumed in March.

While welcome news, this reduction, flagged by the Chancellor in his speech, does not change the difficult outlook from here.

And the OBR yesterday flagged again the ultimate tumble in UK exports and hit to productivity it expects from Brexit.

It said: “Since our first post-EU referendum EFO (economic and fiscal outlook) in November 2016, our forecasts have assumed that total UK imports and exports will eventually both be 15% lower than had we stayed in the EU.

“This reduction in trade intensity drives the 4% reduction in long-run potential productivity we assume will eventually result from our departure from the EU.”

The OBR added: “In summary, the evidence so far suggests that both import and export intensity have been reduced by Brexit, with developments still consistent with our initial assumption of a 15% reduction in each.”