Budget 2021: UK economy set to return to pre-Covid level at end of year

The UK's spending watchdog expects the economy will return to pre-Covid levels at the turn of the year, Chancellor Rishi Sunak has said.

The Office for Budget Responsibility (OBR) has lifted its prediction for economic growth in 2021 to 6.5%, up from its previous forecast of 4%.

It has also reduced its estimate of the long-term "scarring" effect of Covid-19 on the economy from 3% to 2%.

But the chancellor acknowledged that the cost of living is rising.

Mr Sunak said that rising inflation, which measures how quickly the cost of living increases over time, was due to increased demand for energy and supply chain issues as economies and factories reopened following coronavirus lockdowns.

He said inflation in September was 3.1% "and is likely to rise further". The OBR expects the CPI measure of inflation to average 4% over the next year.

"The pressures caused by supply chains and energy prices will take months to ease," the chancellor said.

"It would be irresponsible for anyone to pretend that we can solve this overnight."