• OBR UK growth forecast for downgraded significantly across the forecast period
• Inflation expected to move back to the 2% target by 2019
• Public sector borrowing £49.9 billion in 2017-18, £8.4bn lower than forecast.
BCC VIEW OF OBR ECONOMIC FORECAST
“The downgrades to the OBR’s latest GDP forecasts are significant, and are now closer to our view that the UK economy is in a prolonged period of sub-par growth. Their projections confirm that consumer spending, a key driver of UK growth, is likely to remain under pressure over the next few years, with pay growth not expected to exceed price growth until 2019. The OBR’s latest outlook also confirms that the imbalances in the UK economy are likely to remain in place for the foreseeable future. Business investment is forecast to be much weaker than in the OBR’s March outlook, and net trade’s contribution to overall UK growth is expected to remain limited. The downgrades to the OBR’s projections for productivity highlight the deep-rooted structural problems in our economy – from skills shortages, to infrastructure bottlenecks – that continue to undermine the UK’s long-term growth prospects.
“On the public finances, it is encouraging that government borrowing for this financial year is now expected to be lower than in their previous forecast. However, over the next few years the pressure on the UK’s fiscal position is likely to increase by more than the OBR is currently predicting, in the face of subdued growth and weak productivity. In order to make sustained progress in cutting the deficit, more needs to be done to deliver the type of economic growth needed to achieve a real strengthening and widening of the UK’s tax base.”
Suren Thiru – BCC Head of Economics
1. Economic growth: The Office for Budget Responsibility (OBR) expects GDP growth for 2017 of 1.5 per cent, down from their previous forecast of 2.0 per cent published in March 2017. This is slightly lower than the latest BCC forecast of 1.6 per cent. The growth forecast for 2018 has been downgraded to 1.4 per cent (previously 1.6 per cent). Forecasted growth in 2019 has been downgraded to 1.3 per cent (from 1.7 per cent).
2. Inflation: The OBR expects CPI inflation to be 2.7 per cent in 2017 and 2.4 per cent in 2018, higher than its March 2017 forecast. CPI inflation is expected to move back to the Bank of England’s target of 2 per cent by 2019.
3. Labour market: The OBR now expects unemployment to reach 4.4 per cent in 2017 and 4.3 per cent in 2018. This is lower with their March 2017 forecast of 4.9 per cent in 2017 and 5.1 per cent in 2018.
4. Fiscal Forecast: The OBR now expects public-sector net borrowing to reach £49.9 billion in 2017-18. This is £8.4 billion less than the OBR forecast in March 2017. Public sector net debt as a share of GDP is forecast to peak at 86.5 per cent in 2017-18, before falling to 79.1 per cent of GDP in 2022-23.
5. Public spending: Total public spending is expected to amount to around 38.9 per cent of GDP in 2017-18. Public spending has been forecast to total £795.3 billion in 2017-18, £7.1 billion lower than the March 2017 estimate of £802.4 billion. Total public spending is now projected to fall to 37.7 per cent of GDP in 2022-23.
*BCC’s Q4 2017 Economic Forecast will be published on Monday 11th December