Labour Faces Budget Challenges as Treasury Watchdog May Downgrade Growth Forecasts

The economic growth outlook for the UK may face a downgrade from the Treasury’s independent watchdog, potentially due to Labour‘s struggles in meeting housing construction targets, according to expert analysis.

The Office for Budget Responsibility (OBR) is reportedly considering adjustments to the economic forecasts it provides to the Chancellor in light of the sluggish rate of new home building.

In a recent statement, Housing Secretary Angela Rayner acknowledged that the Government is unlikely to meet its ambitious goal of constructing 1.5 million homes before the next general election, admitting that there is only a “slim chance” of achieving this target.

Official data indicate that in the first two years of Labour’s administration, only 392,400 homes were built—just over 25% of the established goal.

The OBR has previously noted that fulfilling the original housing target could potentially contribute an additional 0.2% to the UK’s GDP. However, housing expert Neal Hudson mentioned that meetings with OBR officials suggested they may lower this estimate, suggesting that the original figure might be exaggerated.

A potential downgrade in the UK’s growth forecast could compel the government to increase borrowing, which may subsequently drive up mortgage rates, further impacting the housing market.

Katie Lam, the Shadow Housing Secretary, expressed skepticism about Labour’s ability to near its construction goals, stating that expectations are low.

“The only way forward is to support Britain’s house builders and simplify the process to create homes in the locales where people desire to live,” she declared, emphasizing that Labour’s approach has hindered progress and constrained home ownership.

Chief Executive of Britain Remade, Sam Richards, commented on the dire economic implications if the housing target is missed, arguing for an urgent increase in planning applications. He highlighted that England requires more than 45,000 new applications monthly to realistically meet its objective, pointing out that fewer than 20,000 were registered last year alone.

Mr. Hudson noted that the OBR’s review of the growth forecasts tied to planning reforms comes as concerns grow about whether the target can be met.

Ms. Rayner recently reaffirmed her commitment to the housing target during an appearance on the BBC’s Sunday With Laura Kuenssberg program. Although she maintained that achieving the goal would be extremely challenging, she insisted the target remains essential.

Recent initiatives aimed at accelerating home construction include measures for default approval of homes near well-connected transport stations, alongside an announcement of a £10 billion investment in social and affordable housing. However, Andy Burnham faced criticism for diluting previous commitments regarding funding allocation for council homes.

Additionally, the GMB union has raised alarms over 500 million bricks languishing unused in depots throughout the UK, which could threaten the government’s housing objectives. The union adds that several brick manufacturers are either shutting down or limiting production, with potential job losses looming.

Data released last month showed a deceleration in annual house price growth, with financial experts attributing this trend to a sluggish housing market marked by rising mortgage rates and broader cost pressures. As reported by the Office for National Statistics (ONS), the average UK property price rose by 1.4% to £273,000 year-on-year, a decline from a 1.5% increase in June.

A spokesperson from the Ministry of Housing, Communities and Local Government reiterated the government’s unwillingness to shy away from its target, citing a 15% increase in housing starts as a positive sign, albeit one that must navigate ongoing challenges related to construction costs and external economic factors.

The OBR is expected to present its economic and fiscal outlook, alongside the upcoming Budget scheduled for October 28.