BELOW-TREND growth as far as the eye can see is becoming as depressingly familiar in Budget and Autumn Statement documents from the Conservative Government as the groundhog was to Bill Murray in the cinemas back in 1993.
It might have been Chancellor Philip Hammond’s first Budget but he kept
the tradition alive yesterday. The independent Office for Budget Responsibility’s (OBR’s) forecasts accompanying his policy measures show UK growth well below the historical long-term average annual rate all the way out to 2021, which is as far as these projections extend.
People could be excused for finding this difficult to believe, given the remarkably upbeat demeanour of the Chancellor as the UK economy braces itself for the triggering of Article 50 and the start of the official two-year negotiating period for Brexit.
A near-ebullient Mr Hammond, focusing his alarmingly scant references to the subject of Brexit largely on a joke involving net borrowing to gross domestic product ratios and European Commission president Jean-Claude Juncker, declared: “I report today on an economy that has continued to confound the commentators with robust growth.”
It is worth noting that UK growth in 2016, revised down to 1.8 per cent in official figures published last month, is well adrift of the OBR’s 2.1 per cent forecast at the time of the Autumn Statement in November.
Mr Hammond made much of the OBR’s upward revision yesterday of
its growth forecast for this year from
1.4 per cent to two per cent.
However, the OBR has cut its UK growth forecasts for each of the following three years.
It is now predicting growth of 1.6 per cent in 2018, down from 1.7 per cent at the time of the Autumn Statement.
The OBR has reduced its prediction of growth in 2019 more sharply, from 2.1 per cent to 1.7 per cent. And it has cut its forecast of expansion in 2020 from 2.1 per cent at the time of the Autumn Statement to 1.9 per cent.
It continues to forecast two per cent growth in 2021.
These projections are all way adrift of the UK’s long-term average annual growth rate, put by Bank of England Governor Mark Carney at about
2.75 per cent.
It is also worth emphasising that the growth forecast for this year is still adrift of the 2.2 per cent expansion predicted by the OBR at the time of George Osborne’s final Budget last March, ahead of the Brexit vote. At that stage, the OBR was projecting growth of 2.1 per cent in each of 2018 and 2019.
So what is projected is significantly worse than what was forecast a year ago, before the referendum result created a different road for the UK economy. And the forecast growth a year ago was, in any case, also well below trend as far as the eye could see.
While Brexit is now clearly weighing heavily on the growth and borrowing projections, as inflation surges on the back of sterling weakness in the wake of the EU referendum vote and household budgets become ever more squeezed, the Conservatives have developed a reputation for consistently presiding over below-trend growth.
Over the seven-year period from 2010 to 2016, inclusive, above-trend growth was achieved in only one year, figures from the Office for National Statistics show. This was the 3.1 per cent expansion in 2014.
In five of the other six years, growth was below two per cent. In 2011, growth was 1.5 per cent and 2012 expansion was only 1.3 per cent.
In 2015, growth came in at 2.2 per cent, still well adrift of the long-term average annual rate, ahead of the slowing of expansion to 1.8 per cent
last year.
In terms of inflation, the OBR forecasts look surprisingly muted compared with the expectations
of many forecasters and in the context of the sharp rises in the prices of
food and other essentials that are feeding through on the back of sterling weakness.
The OBR is forecasting annual UK consumer prices index inflation of
2.4 per cent over this year, falling to
2.3 per cent in 2018, and coming in bang in line with the two per cent target in each of the following three years.
Mr Hammond made something
of a big deal yesterday about the OBR’s projections for public sector net borrowing for the fiscal years from 2016/17 to 2021/22 being lower
than those at the time of the Autumn Statement.
However, while he noted net borrowing in the fiscal year ending this month was now expected to be £51.7bn, around £16.4bn lower than the OBR’s projection at the time of the Autumn Statement, the new forecast for 2017/18, of £58.3bn, is little changed from the £59bn projected in November.
The latest 2018/19 net borrowing prediction of £40.8bn is down from a projected £46.5bn at the time of the Autumn Statement.
The forecast for net borrowing in 2019/20 is now £21.4bn, down only slightly from the £21.9bn forecast in November. Net borrowing is now projected at £20.6bn in 2020/21 and £16.8bn the following fiscal year, down only marginally from respective projections of £20.7bn and £17.2bn at the time of the Autumn Statement.
In the OBR’s Budget 2016 forecasts, the UK was projected to record a surplus of £10.4bn in 2019/20 on the net borrowing measure.
Mr Hammond himself acknowledged in his speech yesterday that projected net borrowing over the forecast period was still about £100bn higher than predicted by the OBR at the time of Mr Osborne’s last Budget.
At the time of the Autumn Statement, the OBR noted the vote to leave the EU was directly responsible for £58.7bn of projected extra net borrowing. And £16bn of this hit was expected to arise from lower migration.
The OBR said yesterday it had
not revised its judgment of the
medium-term effect of leaving the EU
on the UK economy.
Back in 1993, Bill Murray essentially got himself out of having to endure Groundhog Day again and again, and having to wake up early to cover the antics of animal star Punxsutawney Phil, by finding happiness and contentment.
It appears, from yesterday’s projections from the OBR, that economic happiness is a long way away for the Conservative Government and, more importantly, for the UK population, as we brace for Brexit.
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