Britain’s economy is already in recession and set to shrink by 1.4% next year after the fiscal watchdog slashed growth forecasts due to rampant inflation.

The Office for Budget Responsibility (OBR) has said it expected UK gross domestic product (GDP) to slump as it significantly downgraded previous projections that the economy would actually grow by 1.8% in 2023.

The OBR also pulled down growth expectations for the following year in the face of continued inflationary pressure.

Autumn statement 2022 GDP growth forecast.
(PA Graphics)

It has, however, slightly upgraded the total economic growth expected this year to 4.2% from 3.8% in the March statement.

The OBR has also predicted that inflation will hit an average rate of 9.1% this year and 7.4% in 2023.

In his autumn statement, Chancellor Jeremy Hunt said the forecasts “confirm that our actions today help inflation to fall sharply from the middle of next year”.

“They also judge that the UK, like other countries, is now in recession,” he added.

Mr Hunt confirmed in his speech that new spending reductions and tax plans are intended to secure an extra £55 billion to help address the UK’s fiscal hole.

The hole is the extra money needed by the Government in order to meet self-imposed targets to bring down the size of state debt relative to national income.

The announcement comes a day after inflation rocketed to a 41-year-high of 11.1% in October due to surges in the cost of energy and food.

The OBR’s latest forecasts have been long awaited after the official forecasting body was not used during the September mini-budget, led by former chancellor Kwasi Kwarteng.

Economists partially linked the shock to the pound and bond yields following the mini-budget announcement to a lack of visibility on the impact of the previous government’s fiscal plan.