UK’s forecast ‘unchanged’ following Autumn Statement
In spite of disappointing progress on deficit reduction, there was little in the Chancellor’s Autumn Statement to suggest the UK’s economic forecast for 2015 has altered.
Thursday 04 December 2014
In his final Autumn Statement before the general election Chancellor George Osborne called for voters to allow him to “finish the job” on economic recovery.
Among his headline measures - a surprise shake-up of stamp duty levies and a major crackdown on tax avoidance - Mr Osborne reported figures which point to a largely unchanged outlook for 2015.
He acknowledged that "substantial savings" in public spending will have to be made in the next parliament; expected to be closer to £30 billion than the £25 billion previously predicted.
But the Chancellor highlighted the notion that Britain now faces a choice, calling on the public not to “squander the economic security we have gained”.
Commenting, Ian Stewart, Chief Economist at Deloitte said: “Despite some headline grabbing measures the overall effect of today’s announcements are tiny, with a net easing of policy next year, equivalent to 0.05% of GDP, and a modest tightening thereafter.
“No one will change their economic forecasts for the UK on the back of these numbers,” he adds.
Mr Osborne was forced to admit that weak tax revenues mean the deficit is not falling as fast as hoped and will be more than £90 billion this year.
But he pointed to forecasts of surging 3% growth. This is expected to slip back below 2.5% in subsequent years.
And the Chancellor confirmed that borrowing was estimated to be £91.3 billion this year - rather than the £86.4 billion previously expected.
“With the striking exception of the deficit the economic outlook for 2015 is almost exactly what the Coalition might have hoped for when it came to office in 2010: good growth, falling unemployment, low inflation and rising real incomes,” Ian Stewart said.
“In 2015 the UK will be one of the fastest growing major economies in the EU; and the UK is likely to outpace three of the five “BRICS” economies - Brazil, Russia and South Africa. 2015 is likely to be the first year in which UK real earnings have risen in six years."
Not as bad as feared
The Chancellor insisted the UK's budget deficit had been halved since 2010 and was still forecast to fall in every year. By 2018/19 the Government is due to record a surplus of £4 billion.
The OBR also anticipates above-inflation wage rises for the next four years.
Mr Osborne said the fiscal position was helped because the welfare bill and debt interest repayments had been reduced, meaning extra cash could be diverted to the NHS.
Ian Stewart comments: “Deloitte’s research with CFOs confirms that large businesses are in expansionary mode; we agree with the Office of Budget Responsibility that the next few years should see capital spending rising at the fastest rate since the Dot.com boom of the late 1990s. Crucially, with the OBR forecasting that inflation will stay below its 2.0% target for the next two years interest rates are set to remain low and money cheap, for longer.”
Hard work to come
Mr Osborne was keen to stress that the Government is half way through its task and is on track to complete the job.
“Now Britain faces a choice," he told MPs. "Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess?
"Or do we finish the job - and go on building the secure economy that works for everyone? I say: we stay the course. We stay on course to prosperity."
Summarising, Ian Stewart comments: “Despite disappointing growth in revenues today’s deficit forecasts weren’t quite as bad as some feared. But that shouldn’t obscure the fact that we are only half way through a deficit reduction programme which stretches towards the end of the next Parliament.
“The IMF reckons that the UK deficit this year will be larger those in Greece, France, Italy or Ireland. The OBR is forecasting a tightening of fiscal policy and cuts in real government consumption spending for each of the next five years. The private sector will have to compensate for this and drive UK growth through the next Parliament.”
Copyright Press Association 2014