By Matthew Keep,
Daniel Harari,
Brigid Francis-Devine
Background to Spring
17 March 2022
Statement 2022
Summary
1 Introduction
2 Economic situation
3 Cost of living: The effect on households
4 Public finances
5 Parliament’s fiscal year
commonslibrary.parliament.uk
,Number CBP9500 Background to Spring Statement 2022
-Image Credits
Grey squirrel by Bruno Nascimento. Licensed under CC BY-SA 2.0 / image
cropped.
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2 Commons Library Research Briefing, 17 March 2022
,Background to Spring Statement 2022
Contents
Summary 4
1 Introduction 7
2 Economic situation 8
2.1 Recent developments 9
2.2 Impact of conflict in Ukraine 11
2.3 Inflation 16
2.4 Interest rates and monetary policy 21
2.5 Household spending 22
2.6 Businesses conditions 25
2.7 Economic outlook and GDP growth forecasts 27
2.8 International comparisons 29
2.9 Longer-term outlook 31
3 Cost of living: The effect on households 34
3.1 Squeezed household budgets 35
3.2 Low-income households are especially affected by inflation 36
3.3 February 2022: support for households with rising energy costs 38
3.4 How could the Chancellor provide further support to households? 39
4 Public finances 42
4.1 Government borrowing 43
4.2 Government debt 47
4.3 Government debt interest 49
4.4 Targets for the public finances 51
4.5 Tax changes in 2022/23 55
4.6 The tax burden and size of the state 56
4.7 Spending on defence 59
5 Parliament’s fiscal year 61
3 Commons Library Research Briefing, 17 March 2022
, Background to Spring Statement 2022
Summary
This briefing sets out the background to Spring Statement 2022, which will
take place on 23 March 2022. The Office for Budget Responsibility (OBR) will
publish revised forecasts for the UK economy and public finances on the same
day.
Due to the rollout of Covid-19 vaccines, the coronavirus situation in the UK is
greatly improved, compared with the previous two years. However, Russia’s
invasion of Ukraine creates a new crisis. In the UK there was concern about
the effect that rising prices, and other factors, are having on household
budgets. The Ukraine crisis may push energy and food prices higher still.
Economic situation: Effect of the Ukraine crisis
(section 2)
High and rising inflation has dominated recent economic news. Higher energy
costs have been a prominent contributing factor, as have increasing
consumer goods prices. Food prices are also increasing.
As well as the military, political and humanitarian impact of Russia’s invasion
of Ukraine, there will also be implications for the world economy, including
the UK. It’s likely that energy and food prices will rise further. Russia is one of
the world’s largest exporters of oil and gas, while Russia and Ukraine are
important producers of various agricultural products such as wheat.
Since the conflict began, prices in many commodities markets – including in
energy, food and metals – have risen but have been volatile. It seems likely
that the conflict will lead to inflation in the UK rising even further than
expected previously. Following the invasion, economists expect UK inflation to
be higher and more persistent.
The main risk to the UK economy is that rises in the cost of living will reduce
consumer spending growth, a key driver of economic growth. Higher prices
and taxes are expected to lead to falls in household incomes adjusted for
inflation. Business costs will also rise, potentially stemming an expected
recovery in business investment, which remains well below pre-pandemic
levels.
Before the conflict in Ukraine, economic indicators painted a largely positive
picture of the UK economy in early 2022. The Omicron variant of the
coronavirus left only minimal economic damage in December, with GDP
4 Commons Library Research Briefing, 17 March 2022
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