The Office for Budget Responsibility has revised up its forecast for GDP growth in 2017 to 2 per cent, compared to the 1.4 per cent predicted in the Autumn Statement.
Chancellor Philip Hammond used his first and last Budget speech to declare: “I report today on an economy that has continued to confound the commentators with robust growth.”
However, the OBR’s forecast is still lower than the 2.2 per cent predicted a year ago, when the UK was expected to remain in the EU. Public sector net borrowing in 2020-21 is also higher than expected.
In other words, the OBR is no longer in the grip of Project Fear. But neither is it in the Sunny Uplands of Brexit lore. Instead, the message is Project Realism. (Oh, and we’re not due to leave the EU single market for another two years).
In fact, the OBR sticks by its forecast growth for 2021. What has changed is “the profile of growth” in the years in between.
The OBR now forecasts growth of 2 per cent in 2017, 1.6 per cent in 2018, 1.7 per cent in 2018 and 1.7 per cent in 2019, before rising to 1.9 per cent in 2020 and 2 per cent in 2021.
The good news is that this suggests the UK will avoid a recession. The bad news is that this time last year, growth between 2018 and 2021 was expected to be 2.1 per cent – as much as five percentage points higher.
Meanwhile, as far as shoppers are concerned, inflation will start to bite. This time last year, inflation was expected to be less than 2 per cent until 2018. Now, inflation is expected to rise to 2.4 per cent in 2017, and 2.3 per cent in 2018. As a result, the OBR expects us to buy less in the coming years – bad news for businesses.
As for the nation’s finances, public sector net borrowing in 2016-17 is expected to be £51.7bn, and fall slowly each year to £20.6bn in 2020-21. Compare this to the Budget 2016, when the OBR at Budget 2016 predicted a surplus of £11bn by 2020-21.
So if the Autumn Statement was in thrall to Project Fear, it may have done Brexiteers a favour. Focusing on the pessimism of the autumn helps avoid the real deterioration since March 2016.
The OBR figures also reflect a technical change made in January 2017, which has altered the way corporation tax revenues are recorded.
The Resolution Foundation says this has “had a noticeable effect on the net borrowing figures”.
And for all the strawman of the Autumn Statement, and the tweaks to OBR accounting, there is a further challenge for Hammond. As Stephen writes, the consequences of Brexit for the nation’s finances are yet to be worked out. Where is the money for this to come from, if not more borrowing?