BCC Budget 2016: Economic Summary
· OBR UK growth forecasts downgraded, as global outlook weakens and UK productivity expected to be lower.
· UK’s fiscal outlook weakens, but OBR predicts a £10.4 billion budget surplus in 2019/20.
· Little change to outlook for inflation and unemployment compared to the November forecast.
|BCC VIEW OF OBR ECONOMIC FORECAST
“The worsening headwinds in the global economy are a major cause of the OBR’s downgraded growth forecast, but problems at home have also played a part. Our own economic forecast shows slightly better figures than the OBR, but most projections show moderate, steady growth in the British economy at a rate of 2% or slightly higher, which is set to remain higher than in most G7 countries. Even though the public finance figures are more realistic than in November, their new estimates are still ambitious in our view. Our own forecast anticipates a larger deficit than the OBR predicted in November. We continue to believe that achieving a surplus in excess of £10 billion in 2019 will prove to be highly challenging. The most worrying feature of the OBR forecast is the downgrading of the estimate of future increases in productivity, which remains a key challenge for the British economy in the years ahead.”
David Kern – BCC Chief Economist
1. Economic growth: The Office for Budget Responsibility (OBR) expects GDP growth for 2016 of 2.0 per cent, down from their previous forecast published in November 2015. This is lower than the BCC forecast of 2.2 per cent. The growth forecast for 2017 has been cut to 2.2 per cent (previously 2.5 per cent). Forecasted growth in 2018 has been cut to 2.1 per cent (from 2.4 per cent). Overall, the OBR’s GDP forecasts are below the BCC’s latest growth forecasts. The BCC currently forecasts 2.3 per cent growth in 2017 and growth of 2.4 per cent in 2018.
2. Inflation: The OBR expects CPI inflation to be 0.7 per cent in 2016 and 1.6 per cent in 2017, lower than its November 2015 forecast. CPI inflation is expected to move back to the Bank of England’s target of 2.0 per cent in 2018. The OBR’s latest inflation outlook is in line with the latest BCC CPI inflation forecast of 0.9 per cent in 2016 and 1.8 per cent in 2017.
3. Labour market: The OBR now expects unemployment to fall to 5.0 per cent in 2016 then remain steady. This is lower than their November 2015 forecast of 5.2 per cent in both 2016 and 2017.
4. Fiscal forecast: The OBR now expects public-sector net borrowing to reach £72.2 billion in 2015-16. This is £1.3 billion lower than the OBR forecast in November 2015. The OBR predicts a budget surplus in 2019-20 of £10.4 billion. Public sector net debt as a share of GDP is forecast to peak at 83.7 per cent of GDP in 2015-16, before falling to 74.7 per cent of GDP in 2020-21.
5. Public spending: Total public spending as a share of GDP is expected to peak around 40.8 per cent in 2015-16 and fall to 36.4 per cent by 2021. Public spending has been forecast to total £771.9 billion in 2016-17, £1.4 billion lower than the November 2015 estimate of £773.3 billion.