24 Nov 2016
The British Chambers of Commerce have released an economic summary of the Autumn Statement.
- OBR UK growth forecast for 2016 upgraded, but growth downgraded in 2017 and 2018.
- Government no longer seeking a budget surplus in 2019-20 – committed to returning public finances to balance “as soon as practicable”
Suren Thiru, Head of Economics at BCC, said: “Unsurprisingly, the OBR’s revised forecasts paint a more pessimistic picture of the UK economy. Despite this, in our view the OBR is slightly too optimistic about the UK’s near-term prospects. We think that the outlook for business investment is likely to be materially weaker than the OBR is currently predicting, with higher inflation and continued uncertainty over Brexit likely to stifle business growth intentions over the next year. However, measures to boost the UK’s creaking infrastructure and weak productivity announced in the Autumn Statement will help to support business confidence during this period of economic uncertainty.
On the public finances, the OBR expects that the UK’s already challenging fiscal position is set to weaken further over the medium term. While the slower pace and greater flexibility of the new fiscal framework is a welcome step, the government’s ability to meet its new fiscal rules will ultimately be driven by whether it is able to reverse the persistent shortfall in tax revenues.”
Economic growth: The Office for Budget Responsibility (OBR) expects GDP growth for 2016 of 2.1 per cent, up from their previous forecast of 2.0 per cent published in March 2016. This is higher than the BCC forecast of 1.8 per cent. The growth forecast for 2017 has been cut to 1.4 per cent (previously 2.2 per cent). Forecasted growth in 2018 has been cut to 1.7 per cent (from 2.1 per cent). Overall, the OBR’s GDP forecasts are slightly higher than the BCC’s latest growth forecasts. The BCC currently forecasts 1.0 per cent growth in 2017 and growth of 1.8% in 2018.
Inflation: The OBR expects CPI inflation to be 0.7 per cent in 2016 and 2.3 per cent in 2017, higher than its March 2016 forecast. CPI inflation is expected to move back to the Bank of England’s target of 2 per cent in 2020. The OBR’s latest inflation outlook is lower the latest BCC CPI inflation forecast of 0.6 per cent in 2016 and 1.6 per cent in 2017.
Labour market: The OBR now expects unemployment to reach 5.0 per cent in 2016 and 5.2 per cent in 2017. This is broadly in line with their March 2016 forecast of 5.0 per cent in both 2016 and 2017.
Fiscal Forecast: The OBR now expects public-sector net borrowing to reach £68.2 billion in 2016-17. This is less than the OBR forecast in March 2016. OBR predicts a budget deficit in 2019-20 of £21.9 billion. Public sector net debt as a share of GDP is forecast to peak at 90.2 per cent of GDP in 2017-18, before falling to 81.6 per cent of GDP in 2021-22.
Public spending: Total public spending expected to amount to around 39.9 per cent of GDP in 2016-17. Public spending has been forecast to total £778.8 billion in 2016-17, £6.9 billion higher than the March 2016 estimate of £773.3 billion. Total public spending is now projected to fall to 38.0 per cent of GDP in 2020-21.