Spring Statement: the light at the end of the tunnel is pretty murky

13 Mar 18

Despite some improvements to the economic forecasts, the overall outlook is still gloomy, says Dan Corry.

Today’s Spring Statement was mainly about the new forecasts from the Office for Budget Responsibility.

These were anticipated to reflect the rather better economic data since the last forecast in November in terms of borrowing and productivity, and a much stronger world economy.

There was indeed some improvement in the forecasts the OBR presented today, but most of it was rather muted and applied only to this year.

So, growth has been nudged up by 0.1 percentage points to 1.5% and the borrowing for this year is anticipated to be £4.7bn less than forecast before.

But the striking thing was that the OBR did not carry this better performance into future years – and indeed has slightly downgraded growth in some future years. That means for instance that cumulative growth between 2017 and 2023 goes from 8.9% to just 9.0% – hardly the stuff of revolutions.

Why is this? Partly because the OBR is not willing to revise its gloomy November view on productivity in the light of only a few months better data, and partly because it does not see the UK economy as being able to grow that fast given some signs of cyclical pressure on prices, spare capacity and wages.

That means that the OBR believes we will remain in a low growth period with projected growth over the next few years pretty woeful by historical standards and also poor relative to most of our competitors.

Nevertheless, the chancellor wanted to sound upbeat.

He did his best with announcements on things like housing and transport, even though he was in effect just allocating expenditure announced previously; made a lot of the fact that the deficit and debt levels (just a tiny bit in the case of the latter) are coming down with the so called ‘day to day’ deficit (ie excluding investment spend) going into balance by 2018/19; and teased us all by hinting strongly that if all went well he may have some room to spend more in the Budget in the autumn.

This is all as clear as mud for public sector managers wondering if austerity is finally going to come to an end. It does little to help those working closely with the public sector be they in the private of the charity sector.

The politics look pretty strong on pushing the government to allocate more money as the NHS visibly creaks, and councils – including Tory-run ones – start getting into financial problems. On the other hand, the minute austerity is declared over, it makes it harder for the Conservatives to go hard in attacking Labours supposed spend-thrifty instincts. Perhaps the chancellor’s constant use of a ‘balanced approach’ gives a hint as to how they will try to play things. The 2019 spending review, that Phillip Hammond referenced several times, looks a key moment in the electoral cycle.

So, when the chancellor says there is light at the end of the tunnel, it would be a brave person who planned on that basis with no idea yet of how long that tunnel is and whether it going to be rainy, sunny or just really foggy when we do emerge.

And that’s not to mention the uncertainty surrounding Brexit.  


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