Spring Statement 2018: OBR revises up GDP; Inflation to fall to 2%

Wednesday, 14 Mar, 2018

Chancellor Philip Hammond has delivered an optimistic assessment of the United Kingdom economy saying that after years of austerity that "there is light at the end of the tunnel".

The OBR, the independent body set up in 2010 to provide independent economic forecasts for the government, saw less reason to be so breezily optimistic.

"We are building a Britain fit for the future and an economy that works for everyone", he added. It's also true that for the first time since the financial crisis the United Kingdom is borrowing only to invest, rather than to fund day-to-day spending. But with the economy expected to limp along until 2021 (with 1.4 per cent GDP growth) and 2022 (1.5 per cent growth) the chancellor faced down critics by declaring bullishly: 'Forecasts are there to be broken - as a nation we did it in 2017 and we should make it our business to do it again'.

He was pleased to declare that this will be the "first sustained fall in debt in 17 years".

Mr Hammond said that review would be used to allocate the money to different services in 2020-21 and beyond.

This marks "a turning point in the nation's recovery from the financial crisis of a decade ago" and there is now "light at the end of the tunnel", he said.

He also looked on course to meet another target to cut the budget deficit, adjusted for the swings of the economic cycle, to 2 percent of GDP by the 2020/21 financial year.

The Treasury intends to explore how the economic incentives can drive innovation, for example, by stimulating businesses to develop and integrate new technology or encouraging growth in the recycling sector by addressing barriers to investment.

If the OBR's forecasts prove accurate, another five-year run of low growth is already under way.

Buxton added: "In terms of economic growth, there were some positive, albeit very modest announcements".

He hailed the strongest manufacturing growth for 50 years and record low unemployment, blasting Labour for spreading "doom and gloom" on the economy.

Output per working hour rose by 0.8% in the three months to December following a 0.9% rise in the previous quarter, according to the Office for National Statistics. We should not be surprised: it's too early in the political cycle for anything more bullish and the Chancellor himself said that forecasts are there to be beaten.

Mr Hammond has said he might be able to allow a bit more public spending later this year.

Rejecting his label as an "Eeyore", he told the Commons that "I am positively Tigger-like today" - but the forecasts show little sign of a major bounce in the economy.

"These forecasts put the United Kingdom in a better position to face the moment of truth on Brexit".

He said "substantial progress" has been made in Brexit talks.

Mr Hammond even expressed optimism about Brexit as he vowed to "deliver a Brexit that supports British jobs, businesses and prosperity" by cutting a good deal with Europe.

However, he added: "We should not get carried away". It's true that the country's debt burden is about to fall.

Image copyright Getty Images What did the fiscal watchdog say on Brexit? However, pension promises mean the United Kingdom will still be paying around £2.5bn all the way to 2064.

The outlook for growth and for the public finances remain a lot weaker than before the Brexit vote.

The government has also signalled that it is willing to pay to remain part of some European regulatory agencies after Brexit, and areas such as science and education.

However, Paul Mumford, fund manager at Cavendish Asset Management, said while he was loathe to question a forecast from the "ever-reliable" OBR, he described its confidence on inflation as "quite curious".

"Add to that the fact that employment levels remain robust, debt is coming down as a proportion of GDP, and it is hard not to come to anything other than the conclusion that growth in United Kingdom plc will be ok".

In the table, you can see inflation predictions from the Spring Statement alongside forecasts from the Autumn Budget.