The British economy was stronger at the end of last year than expected, with a resulting increase in expected growth for this year, according to the Office for Budget Responsibility (OBR) on Wednesday.
The OBR, the official independent British economic analysis body, issued its Economic and Fiscal Outlook (EFO) just after Chancellor of the Exchequer Philip Hammond completed his budget on Wednesday afternoon. Hammond’s forecasts and statistics are all based on data from the OBR.
OBR chairman Robert Chote explained at a press conference in central London that the changes to the OBR economic forecast since the last EFO in autumn last year were “relatively modest”.
He explained that the official statistic body the Office of National Statistics (ONS), which provides data to the OBR, had revised down its growth figure for 2016 on the back of more data, but had at the same time increased its figure for the final quarter of the year.
As a result of this increased economic momentum entering 2017, Chote said that GDP growth for the year was now forecast to be 2 percent rather than the 1.4 percent in November’s EFO.
Chote said: “The recent strength largely reflects consumer spending, which grew much more strongly than incomes through last year. But we expect GDP growth to slow through this year as higher inflation squeezes household budgets and as the saving ratio stabilises.”
The major difference between the current EFO and the November one, Chote said, was a brighter performance for public finances in the short term.
“Public sector net borrowing (PSNB) is expected to be a lot lower this year than we thought in November, but revisions to later years are much smaller,” he said.
PSNB was revised downwards by 16.4 billion pounds (20 billion U.S. dollars) for the current financial year, 2016-17, through one-off factors that benefit this year’s figures at the marginal expense of later years.
Changes already announced to the accountancy handling of corporation tax and also to the payment date of contributions to the European Union (EU), made at the EU’s request, mean expected expenditures this year will now be made later.
Chote said: “The 16.4 billion pound downward revision this year is so big that the deficit actually rises between 2016-17 and 2017- 18, taking it back roughly to the level we forecast in November. The deficit then remains close to the trajectory we set out in the autumn.
“This pattern reflects a variety of one-off factors and timing effects that flatter this year’s numbers at the expense of next year’s.
Chote said that the government was on course to achieve its target for structural borrowing in 2020-21, with fractionally less room for manoeuvre than it had in November. Enditem