The Office for Budget Responsibility (OBR) revealed a weaker economic outlook for the British economy as it published the statistics used by the UK finance minster in his budget on Wednesday.
OBR chairman Robert Chote told a press conference: "In the short time since our November forecast, economic developments have disappointed relative to expectations and the outlook for the economy and the public finances looks materially weaker." The statistics and economic calculations and forecasts used in the Budget are all vetted for accuracy by the OBR, which then publishes its "Economic and Fiscal Outlook".
Chote explained that the most significant change made by the OBR since its November forecast was to revise down potential productivity growth. Productivity fell sharply in the fourth quarter, and rather than rising by 0.2 percent as forecast, output per hour fell by 1.2 percent, wiping almost all the productivity gains made earlier in the year.
This, combined with revisions to past outturn data and a weaker outlook for inflation meant that the cash size of the economy is about 3 percent smaller at the end of the five-year forecast than predicted in November.
Financial markets had also weakened, with equity prices almost 8 percent lower than in November, sterling was more than 5 percent lower, oil prices 30 percent lower and bond yields on average 33 basis points lower across the United States, Germany and Japan. World trade growth has also been weaker than expected, pointing to less robust demand for UK exports.
"Weaker potential output growth in turn means weaker growth in spending and incomes and a significant loss of tax revenue," Chote told journalists. Chote said that the principal fiscal aim the government had set itself was to have the public spending budget in surplus by 2019/20, and in order to achieve Britain's Chancellor George Osborne had undertaken several measures.
Chote said the chancellor had cut his planned limit on day-to-day departmental spending in 2019-20 by around 2 billion pounds (about 2.86 U.S. dollars) and had made a further commitment to 2 billion pounds of new spending. This would be paid for by a cut in overseas aid of 650 million pounds, and 3.5 billion pounds worth of departmental cuts from an efficiency review in 2018.
Osborne had also saved 2 billion pounds by not compensating public sector employers for an increase in the pension contributions they have to make. In addition, he had moved 1.6 billion pounds of planned departmental capital spending out of 2019/20 and into the previous two years.
Osborne had also delayed by two years the implementation of new tax plans -- in effect making firms pay tax three months earlier than usual -- for large companies, which will now take place in 2019/20. This will shift 6 billion pounds of tax into that year.
Finally, the chancellor had cut a further 1.4 billion pounds from welfare benefits. Chote said: "Osborne remains on track thanks to further measures that shuffle spending out of the fiscal mandate year (2019/20) and shuffle receipts into it.
On that basis, we judge that the chancellor is on course to achieve the letter of the mandate with the same room to spare that he had in the November autumn statement." However the weakened economic position since November meant that Osborne was now set to miss a supplementary target of having public debt fall as a percentage of GDP this year and beyond, said Chote. (1 pound= 1.43 U.S. dollars)
Latest comments