Janus Henderson: UK Spring Statement - Hammond hemmed in

Hopes that recent lower-than-expected borrowing would create room for Chancellor Hammond to loosen the fiscal reins in his autumn Budget have been dented by the Office for Budget Responsibility’s latest forecast.

15.03.2018 | 09:51 Uhr

The OBR revised 2017-18 borrowing down by only £4.7 billion versus expectations of up to £10 billion. Moreover, the reduction in current and future years is attributed to a cyclical boost from the economy operating at a higher level relative to potential rather than an improved structural position. The OBR left its forecast for the structural deficit in 2020-21 unchanged at 1.3% of GDP – well within the “fiscal mandate” requirement of below 2.0% but implying no additional headroom relative to the November forecast.

The new economic numbers are similarly conservative: average GDP growth of 1.4% per annum over 2018-22 is marginally lower than in November, while the OBR has dismissed recent better productivity performance as a temporary blip.

The borrowing undershoot in 2017-18 reflects stronger growth of nominal GDP and receipts than the OBR projected. The new forecast shows nominal GDP growth falling from 3.8% in 2017 to 3.1% in 2018. This looks realistic and may even prove over-optimistic: the year-on-year rise in nominal GDP eased to 3.2% in the fourth quarter of 2017 and monetary trends suggest a further slowdown – see chart.