MNI POLICY: UK Near Term Growth Forecast Cut; Finances Improve

-Hammond: Brexit Uncertainty Damaging UK Economy; Can't Go On

By David Robinson

     LONDON (MNI) - UK growth forecasts for the current year were cut to 1.2% by

the Office for Budget Responsibility from the 1.6% forecast in October,

Chancellor of the Exchequer Philip Hammond told Parliament Wednesday.

     Unveiling his Spring Statement, comprising an updated set of forecasts from

the OBR, Hammond said that uncertainty was still hanging over the UK and "We

cannot allow that to continue: It is damaging our economy."

     The OBR, like the BOE, bases its forecasts on the assumption that there

will be a smooth Brexit. On this basis, the OBR's growth forecasts were little

changed from October while it predicted a slight improvement in the public

finances. The assumption of a smooth Brexit contrasts with the reality of

lawmakers failing to endorse the Withdrawal Agreement with the EU in a vote

Tuesday.

     The following were key points from Hammond's presentation:

     --The OBR made only slight adjustments to its growth forecasts, lowering

this year's projection but upping its 2021 figure. It cut its forecast for 2019

growth to 1.2% from 1.6% in its October projections. It left its 2020 growth

forecast unchanged at 1.4% and raised its 2021 forecast to 1.6% from 1.4%, with

growth then forecast to be running at 1.6% in 2023.

     --The public finances, by contrast, were expected to come in a shade better

in this fiscal year than foreseen in October. In October the OBR had forecast

public sector net borrowing (PSNB-X) would be 1.2% of GDP in the 2018-19 fiscal

year. The OBR forecast it would be 1.1% of GDP this year, a stg3 billion

reduction compared to October. The OBR forecast PSNB-X would shrink steadily,

declining from stg29.3bn in 2019-20, to stg21.2bn in 2020-21, to stg17.6bn in

2021-22, to stg14.4bn in 2022-23 and to stg13.5bn in 2023-24. 

     --The OBR showed Hammond meeting his self-imposed fiscal goal, that the

structural budget deficit, cyclically adjusted net borrowing, should lie below

2% of GDP in 2020-21. Hammond revealed that the OBR forecast that the cyclically

adjusted deficit would be 1.3% in 2019/20 and would decline to just 0.5% by

2023-24, leavings stg26.6 billion of fiscal headroom against hi mandate in the

2020-2021 fiscal year, up stg15.4bn in October. Debt-to-GDP was shown declining

from 82.2% of GDP in the 2019-20 fiscal year to 79% in 2020-21 and on down to

73% in 2023-24. 

     --The OBR substantially raised its average earnings forecast from 2.5% to

3.1% for 2019 and to 3.0% for 2020 from 2.8%.

     --There were no major fiscal announcements from the Chancellor. 

     He said that there would be a new stg3 billion affordable homes guarantee

scheme. He announced a review into the setting of the minimum wage. The Low Pay

Commission (LPC) has recommended a National Living Wage of 60% of median

earnings by 2020 and Hammond said that as well as endorsing this he was setting

up a review of the LPC's remit after 2020. 

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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