MNI: UK Budget: Hammond To Meet Fiscal Goals But Cuts Buffer

By David Robinson and Jamie Satchithanantham

     LONDON (MNI) - The UK government is on track to hit its fiscal goals, but

with a reduced margin for error, Chancellor of the Exchequer Philip Hammond told

parliament Wednesday.

     Hammond unveiled his November fiscal update and revealed that the

independent Office for Budget Responsibility estimated that the public finances

are on track to meet his goals. These targets are that the structural deficit

will be below 2% of GDP by 2020-21 and public sector net debt will fall as a

percentage of GDP in 2020-21.

     Hammond's primary objective, that the public finances will come into

balance in the next parliament, is not one the OBR can fully assess. The next

parliament is only scheduled to start in 2022, putting it beyond the OBR's five

year forecast horizon.

     Hammond, keen to avoid intensifying austerity, appears to be on track to

meet his goals because he has shrunk the buffers. 

     The November Budget showed that the structural deficit (cyclically adjusted

public sector net borrowing) in 2020-21 will be 1.3% of GDP compared with 0.9%

in the March budget, just 0.7 percentage point below the target.

     Public sector net debt was shown peaking at 86.5% of GDP this fiscal year

before falling to 86.4% of GDP in 2018-19 and down to 86.1% in 2019-20 and 83.1%

in 2020-21, compared with a fall to 83.0% from 86.9% projected in the March

budget.

     These forecasts showing the public finances meeting the targets but with

less room to spare than in the March update.

     "I choose to use some of the headroom I established the so that as well as

reducing debt, we can also invest in Britain's future, support our key public

services, keep taxes low and provide a little help to families and businesses

under pressure," Hammond said. 

     The growth forecasts were lowered to 1.5% in 2017, 1.4% in 2018, 1.3% in

2019, 1.3% again in 2020, 1.5% in 2021 and 1.6% in 2022, down from the March

projections of 2.0%, 1.6%, 1.7%, 1.9% and 2.0% respectively. Inflation was shown

peaking at 3.0% this quarter.

     The growth cuts reflected a cut in the OBR's productivity forecasts. From

the Bank of England's perspective the fiscal arithmetic it plugs into its

projections will be little changed, and it uses its own growth forecasts.

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

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$B$$$,M$E$$$,MFB$$$,MGB$$$]