Fiscal watchdog slashes UK growth forecast to lowest since financial crisis

Andrew Cummings
March 16, 2019

"I am acutely conscious that the House (of Commons) has other pressing matters on its mind today", Chancellor of the Exchequer Hammond told MPs after announcing that British gross domestic product growth would be much lower than expected this year, with the United Kingdom economy hit also by China's slowdown and trade war tensions. Previously the OBR had predicted growth of 1.4% for 2021 and 1.5% in 2022.

Hammond said the economy was "remarkably robust", despite the "cloud of uncertainty" caused by Brexit.

The thinktank also warned that it could not determine whether austerity was ending and public services moving "decisively upwards after almost a decade of unprecedented cuts" until the conclusion of the chancellor's spending review, which will be unveiled alongside the autumn budget later this year.

It echoed last month's sentiments from the Bank of England, which warned Brexit uncertainty is set to see growth slump to its lowest level for 10 years in 2019.

Philip Smeaton, chief investment officer of Sanlam UK, said: "Despite the long shadow cast by the Brexit drama, Philip Hammond came to the House of Commons with positive news on tax receipts, meaning that the government is on course to have a smaller deficit in this financial year".

The CBI's chief economist, Rain Newton-Smith, said it was an "admirable attempt to set out a long-term vision for the United Kingdom economy" against a hugely uncertain political backdrop.

However cumulative growth over the next five years is now expected to be slightly higher than it was at the Budget forecast. The estimate for 2023 remains unchanged at 1.6%.

Britain will have a £26.6-billion (RM143.92-billion) war chest to battle the potential damage of its exit from the European Union, a government oversight body said.

The UK parliament rejected that plan in January and again on Tuesday.

While Brexit matters, it is not the only thing that matters, he said. "So, there will still be Brexit-related uncertainty".

"This is up from £15.4 billion in October, as the fiscal costs of the temporary near-term cyclical weakness of the economy have been swamped by the fiscal gains from higher income tax and lower debt interest spending".

The improved outlook meant that Mr Hammond will meet his fiscal rule, for structural borrowing to be below 2...

The Chancellor told MPs that the OBR also expects 600,000 additional jobs to be generated by 2023, reaching a total of 33.2 million people in employment.

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