The Chancellor's spring statement
The Chancellor of the Exchequer’s spring statement did not contain any new policy commitments, although there were a few mentions of future policies in the pipeline.
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The statement was largely focussed on the latest forecasts from the Office for Budget Responsibility (OBR), and an update on progress made on initiatives announced in the autumn 2017 budget.
Key points included:
- GDP was predicted to grow by 1.5% in 2018, up from 1.4% in the OBR’s previous forecast in the autumn budget. This is in line with Knight Frank’s house view for 2018.
- Growth then decelerates to 1.3% in 2019, 1.3% in 2020, then marginally strengthens in 2021 to 1.4%, and 1.5% in 2022. This is more bearish than our forecast.
- The debt to GDP ratio is forecast to fall from 86% now to just under 80% in March 2023. This is a slightly faster rate of decline than the OBR’s previous forecast.
- The Chancellor hinted there may be higher public spending announced in the autumn budget if the government’s fiscal position continues to improve.
- On housing, an additional £1.7 billion is being invested in affordable housing in London. The housing infrastructure fund has received bids for money from 44 local authorities.
- For commercial property, the next business rates revaluation in England will happen in 2021 rather than 2022 as previously scheduled.
- Policies under consideration for the future include a tax aimed at multinational tech firms, a single use plastics tax, and consultation on the use of digital payments.
Chief Economist comments:
The government has a new slogan – “light at the end of the tunnel” – although this one does have some truth in it. Forecasters, investors and firms have long since dismissed the idea of a Brexit recession, and now expect a protracted period of slow growth like the one the OBR predicted yesterday. Five years of GDP growth of between 1.3% and 1.5% is disappointing for the UK, given that over the last 20 years growth has averaged around 2.0%. However, it is nevertheless growth.
Some in the media were disappointed by the lack of any new policies in the Chancellor’s statement, although arguably that was not necessary, and perhaps for the best. The OBR has raised its forecasts thanks to an improvement in the economy that had little to do with the Chancellor’s policies. The global economy is strengthening. Firms are pushing ahead with investment despite the Brexit uncertainty, because they have targets to hit and bills to pay. In 2018, we are seeing proof that economies can grow despite, not because, of what politicians do.