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UK CommentSpring Budget: no major changes to outlook for fiscal policy or UK economy

  1. GDP growth revised up for 2018 but down for 2021-22
  2. Fiscal policy not much changed – still set to be contractionary in the years ahead
GDP growth revised up for 2018 but down for 2021-22
Philip Hammond today delivered his first Spring Statement following his decision to move the Budget to the autumn and abandon having two main fiscal events each year. No tax or spending changes were expected this time. The focus was on updated estimates on the UK economy from the Office for Budget Responsibility (OBR), and whether or not the revision left more room for manoeuvre. However, the estimates from the OBR were hardly changed, and, if anything, to the downside. While the GDP growth estimate for this year was lifted by 0.1 percentage points (p.p.) to 1.5 percent, growth estimates for 2019 and 2020 were left unchanged at 1.3 percent for both years and for 2021 and 2022. GDP growth estimates were taken down by 0.1 p.p. to 1.4 and 1.5 percent respectively. According to the OBR, the upward revision to GDP growth in 2018 is entirely due to a stronger-than-expected global economy. In 2019-20 a stronger contribution from net trade is fully offset by expected weaker domestic demand, which again is caused by higher interest rates. GDP growth in 2021 and 2022 is expected to be lower than in November as the near-term cyclical boost to growth from stronger global activity fades and as higher interest rates continue to weigh on private consumption growth.
Fiscal policy not much changed – still set to be contractionary in the years ahead
The OBR sees the economy as having slightly more momentum in the near term, but sees little reason to change its view of the medium-term growth potential of the UK economy. While the OBR expects the budget deficit to be some GBP 5 billion lower this year than it expected in November, it expects only smaller downward revisions for future years. As a result, the OBR sees the Government’s headroom against its fiscal targets as virtually unchanged compared to its November assessment. Public borrowing is forecast to continue falling from 2018-19 onwards, with the deficit dropping below 2 percent of GDP next year and below 1 percent of GDP in the final year of the forecast. Our main impression from the Spring Statement is that fiscal policy is still set to be contractionary; much on the same course as expected in November. The OBR still expects GDP growth to suffer from Brexit in the years to come, and while the short-term estimates are revised up, longer-term expectations are revised down. The OBR’s expectations for the UK economy are materially weaker than those of the Bank of England, but rather well in line with Handelsbanken’s estimates.




Kari Due-Andresen

Chief Economist Norway

Norway and UK

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