Spring Statement 2018 - PwC comments on the OBR forecasts

Mar 13, 2018

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John Hawksworth, chief economist at PwC, comments on the latest OBR forecasts for the UK economy and public finances announced in the Spring Statement:

"The OBR has nudged up its forecast on economic growth in 2018 from 1.4% to 1.5% but has not changed its view on medium term growth prospects in any material way. Indeed average projected growth over the five years to 2022 has remained unchanged at 1.4%, some way below its historical average rate. The OBR expects the UK economy to remain in the slow lane of global growth for some time to come.

"In particular, the OBR has stuck to its view that productivity growth will remain relatively subdued over the next five years. While noting the surprisingly strong growth in output per hour during the second half of 2017, they have put this down to a potentially erratic decline in average hours worked rather than any increase in output growth. As such, they remain sceptical that this better productivity growth trend will persist or translate into higher GDP growth going forward. This seems like a sensible judgement until we get more evidence that productivity growth has increased on a sustained basis.

"The OBR has reduced its public borrowing forecast for 2017/18 from £49.9 billion in November to £45.2 billion now, but this revision is less than might have been expected given the outturn for the financial year to date. The main reason for this is that the OBR expects local authorities to underspend their budgets by less than the ONS currently assumes, but we will have to wait until September before we get hard data on this. 

"Public borrowing in future years is also expected to be slightly lower than expected in November, but the differences are small and the OBR attributes them primarily to temporary cyclical factors, rather than any material improvement in the underlying structural deficit. Indeed the structural budget deficit is estimated to be just £0.3 billion lower in 2020/21, the key target year for the Chancellor, than the OBR forecast in November. So the Chancellor's comfort margin in meeting his deficit target is essentially unchanged at just over £15 billion.

"With limited change to either growth or borrowing forecasts, there was no particular economic reason for the Chancellor to make tax and spending changes and, as expected, he chose not to do so. But he did hint that he might consider some carefully targeted increases in spending in his Autumn Budget. That will depend, however, on the public finances continuing to improve at least as fast as the OBR projects and on no nasty shocks from the Brexit negotiations."


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