Spring statement expected to set out improved economic picture

12 Mar 18

Tomorrow’s spring statement is likely to show an improved economic position but this should be treated with caution, rival think-tanks have agreed.

Chancellor Philip Hammond is due to give the statement tomorrow.

Speaking on the BBC this weekend, he suggested the age of austerity was coming to an end.

“There is light at the end of the tunnel... but we are still in the tunnel at the moment,” he said, adding that it would be wrong to pour “every penny” into additional public spending.

“We should be very careful looking at single sets of figures – one quarter or two quarters ­– we need to look at what's happening sustainably in the economy.”

He added: “I think most people in this country would be horrified to be reminded that we have £65,000 worth of public debt for every household.”

Hammond said he would not deliver any new tax or spending measures in the brief statement, and would save these for the autumn Budget.

The left-leaning Resolution Foundation said attention would instead focus on whether the Office for Budget Responsibility revised its growth forecast upwards.

Improved tax revenues are expected to boost the public finances by between £7bn-11bn, which could lead the OBR to give a more optimistic forecast.

The OBR in November sharply downgraded its forecast with borrowing predicted to rise to just under £50bn, and real annual earnings not due to return to pre-crisis levels until 2025.

But the Resolution Foundation said that since then the UK had recorded its two strongest quarters of productivity growth in six years, pay was rising at annual rate of 2.9% and the country had a current budget surplus for the first time since 2002.

These positive factors were, however, unlikely to solve the long-term problems of a disappointing performance relative to other countries and while the deficit had returned to pre-crisis levels, national debt has more than doubled since the late 2000s, it said.

Chief economist Matthew Whittaker said: “The OBR ruined the chancellor's Christmas by presenting him with a truly terrible set of economic forecasts last November.

“Britain’s revised economic outlook is likely to give the chancellor more fiscal leeway. However, the broader economic backdrop remains extremely challenging. Britain plunged from the top to the bottom of G7 economic growth league in 2017.”

The free market Centre for Policy Studies said UK productivity and growth forecasts “took a hammering at the autumn Budget, but many economic indicators are now looking positive”.

It said if forecasts were correct, there would be continuing low levels of unemployment and large increases in pay growth until the end of this parliament.

“But this should not lead to complacency or fiscal profligacy,” it said.

“The ratio of debt-to-GDP is nearly 90% and there have already been tax and spending changes since the EU referendum that will cost the exchequer more than £58bn.”

It warned that any improved economic outlook “should not be used as an excuse to soften fiscal consolidation or assume that no action is required to boost productivity”.

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