The forecasts could have been worse. The OBR has now raised its forecast for growth in 2016 to 2.1%. That’s a higher figure than prior to the referendum vote. The OBR has also confirmed that it does not expect a recession this winter following the vote to leave the EU, despite the Treasury and Bank suggestions of an early recession should the public vote us out of the EU. It is also good to see they now forecast the same rate of growth for 2019 as before the vote, though that is the year when we might well actually leave. So far I find myself in complete agreement with the OBR and Treasury.
Where we still disagree is over their forecast for 2017. The OBR now says growth next year will fall to 1.4%. It is difficult to see why. All the current indicators suggest an economy that will continue to grow around the 2% rate, as they forecast last March. Consumer spending and confidence are strong. New housebuilding is accelerating. New car output and sales are good. Money and credit are growing more quickly than before the vote.
The government has decided to ignore the increased borrowing thrown up by the lower growth forecast, which is sensible of them. It has also decided to boost total public spending. This Parliament it is adding £46.1bn to the spending total, averaging around £13bn a year after this year. Much of the increase goes on capital investment, with increased spending on new homes, on road and railway lines, broadband, and hi tec, R and D and venture capital activities.
The budget judgement adds a small fiscal stimulus to the larger monetary stimulus which was happening anyway before the Bank’s injection of more bond buying.
A fuel duty freeze is paid for by a 2% increase in Insurance Premium Tax.
This Statement seeks to boost UK productivity by government infrastructure provision and by direct investment and intervention. Its success will hinge on choosing good public investments that produce a return and boost productivity, and on removing transport and communications bottlenecks for the private sector. There needs to be substantially more infrastructure investment, which will require private capital on top of the public sums identified in this announcement.