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Budget watchdog's worst case scenario for oil 'has already been reached'

Budget watchdog's worst case scenario for oil 'has already been reached'

The Budget watchdog's worst-case scenario for oil has already been reached with yet more price shocks to come.

In its predictions ahead of the Chancellor's statement this week, the Office for Budget Responsibility (OBR) forecast that oil prices would peak at $115 a barrel next year in a 'severe shock scenario'.

But the benchmark Brent crude oil price climbed past $115.90 on Wednesday.

And it is feared the cost of a barrel will peak again next week because Donald Trump has vowed to resume bombing Tehran after the US midterm elections on Tuesday.

The unexpected increase prompted the OBR to significantly downgrade the growth forecast for next year.

GDP is now projected to grow by just 1 per cent in 2027, 0.5 per cent lower than forecasts.

In its forecast, the OBR said: 'We anticipate growth of around 1 per cent in 2027, down about half a percentage point from March, as it takes time for higher global energy prices and increased interest rates to weigh on activity.'

Its March forecast was finalised just before Mr Trump's attack on Iran on February 28, which sent oil prices soaring above $115 per barrel.

Soaring oil prices have already exceeded the Office for Budget Responsibility's (OBR) worst-case forecast. Pictured is an oil storage depot along the River Thames

Renewed US military action against Iran could push oil prices higher. Pictured is the Strait of Hormuz

The OBR now expects inflation to peak at 3.75 per cent early next year and will be about 1.5 percentage points higher across 2027 than expected.

Surging prices mean households will experience no increase in their earnings in 2027 or 2028, the OBR added.

Former Tory defence secretary Sir Gavin Williamson said on Thursday: 'The OBR's worst-case has turned up a year early.

'Things are only going to get worse, and it seems as if the OBR are being ridiculously optimistic and the Government is still planning as if none of this is happening.'

Former home secretary Dame Priti Patel said the OBR will 'continue to downplay the extent of the economic shambles Labour are inflicting upon Britain.'

The OBR said: 'A broad range of factors, many from outside the UK, will influence the UK's future economic performance.'

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John Healey was forced into a humiliating climbdown over welfare on Thursday.

The Chancellor triggered chaos in Whitehall after suggesting the runaway benefits bill would be cut before the next election in 'a Labour way'.

Within hours, the Treasury was trying to row back on his words and Downing Street distanced itself, saying Andy Burnham would not commit to an 'arbitrary timetable' for curbing spending on benefits.

And, last night, Mr Healey reversed his position, saying it was 'not correct to say that we're going to bring this welfare bill down in this Parliament'.

Kemi Badenoch said it was 'astounding' that the Government could not commit to reducing benefits this decade, despite the costs forecast to rise by more than £60billion by 2029.

The Tory leader told the Daily Mail: 'Labour is addicted to benefits and this is why they are getting into a mess every day.

'In just 24 hours, the Chancellor has said there will be no cuts to the benefits bill, gone on the BBC and said actually there will, then had to admit that actually there won't be. 

'All while officials scramble to clean up the chaos. It appears the Prime Minister's 'foot in mouth' is contagious.'

John Healey was forced into a humiliating climbdown over welfare on Thursday (Britain's Secretary of State is pictured outside Downing Street)

Kemi Badenoch said it was 'astounding' that the Government could not commit to reducing benefits this decade (The Tory leader is pictured last week)

Mrs Badenoch said ministers should be 'cutting welfare, funding defence and slashing red tape to get Britain growing', adding: 'Instead they are tinkering around the edges, too scared to confront their MPs ahead of an early election.'

The row came after new forecasts suggested the welfare bill is set to continue rising sharply following Labour's decision to abandon reforms last year.

The Centre for Social Justice think-tank revealed that working age and child benefits alone are set to jump by £33.4billion over the next five years. 

The increase is so big it will swallow up the entire proceeds of the stealth raid on tax thresholds, which is expected to raise £33.1billion over the same period.

Joe Shalam, policy director at the CSJ, said: 'Public support for a system there to protect the most disadvantaged is being pushed to breaking point. A holding position will not fix that. No doubt this will all be addressed in a manifesto that is surely in the post.

'But Britain cannot wait for an election. When the sugar rush wears off, all that will be left is wasted money and wasted potential.'

Meanwhile, the Office for Budget Responsibility warned that benefits spending has grown so rapidly under Labour that the Government is now on course to break its own generous 'welfare cap'. 

The cap covers most working age benefits but excludes pensions. It was set by the last Conservative government at £135.4billion, only to be lifted by Rachel Reeves to a total of £204.2billion by 2029.

The OBR now predicts that spending covered by the cap is now on course to hit £207billion in 2029, busting the limit by almost £3billion.

Breaking the cap would require ministers to bring forward measures to reduce spending – or justify the breach to Parliament.

Polling by More in Common found the public believes spending on benefits is 'unsustainable' by a margin of 60:23. 

Concern cuts across party lines, with Labour voters raising doubts about long-term affordability. The PM yesterday claimed the Government was working 'flat out' to cut spending on benefits and wants to do so 'as soon as we possibly can'.

Downing Street said two reviews will come next month and a policy paper would follow, but could not say whether it will be published in the next 12 months.

Prime Minister Andy Burnham is pictured watching Everton on Thursday only hours after Healey faced scrutiny over the Budget

Any reforms are then likely to need legislation. Eduin Latimer, from the Institute for Fiscal Studies, said the 'most straightforward' way to get 'guaranteed savings' was to cut the level of benefit payments or reduce the number of those eligible, as the Conservatives and Reform are proposing.

He added: 'An alternative is to try to invest in support, things like employment support or increased health spending, which might reduce demand for benefit spending. I think that is closer to this suggestion from the Government of a 'Labour way' … but it's much more uncertain.'

Delivering his Budget on Wednesday, the Chancellor said the Government would 'bring down the welfare bill' but offered no new proposals to cut a bill that is forecast to top £350billion next year. 

In an interview broadcast yesterday, but recorded on Wednesday evening, he suggested in response to a question on BBC Radio 4's Today programme that there would be welfare cuts before the next general election.

But Treasury officials insisted his words did not commit the Government to cuts before the election. 

At the end of a shambolic day, hours after Downing Street had distanced itself, Mr Healey U-turned, saying he had no expectation of making quick savings on welfare.

Reform's Treasury spokesman Robert Jenrick said Mr Healey had been 'utterly humiliated'. He added: 'You can change the Chancellor, but you will never change the Labour Party's addiction to benefits spending.'

HEALEY'S DAY OF U-TURNS

6am - BBC Radio 4's Today programme

Nick Robinson: 'There will be cuts in welfare before the election?'

Healey: 'There will be a reduction in the benefits bill, we'll do that in a Labour way and we will do that because it is simply not good for Britain or progressive to have a bigger and bigger benefits bill and I feel a moral, a moral duty to deal with these youngsters who at the moment have been written off by previous governments and I'm not prepared to see that happen in the future.'

Noon

Downing Street tries to claim the Chancellor did not set out a timeframe for reducing the benefits bill before the next election.

1pm

Andy Burnham tells reporters the Government is working 'flat out' to reduce spending on benefits and wants to do so 'as soon as we possibly can'.

7pm Channel 4 News

Healey: 'It's not correct to say that we're going to bring this welfare bill down in this Parliament because we've not set a timetable for that.'

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