OBR predicts slower growth rate

In Chancellor George Osborne’s 2016 Spring Budget, he reported on the forecast from the Office for Budget Responsibility (OBR) that the UK economy would grow more slowly over the next five years than expected last November.

The OBR’s Economic and Fiscal Outlook estimated GDP growth of 2% for this year, rather than 2.4%, based on lower future productivity. Furthermore, the report cut forecasts for annual economic growth for every year until 2020. The OBR offered reduced global demand among the reasons for the downgrades, as “since our November forecast, economic developments have disappointed and the outlook for the economy and the public finances looks materially weaker”.

Weighing heavily on the OBR’s press conference was the question of whether the UK would ever see productivity return to pre-financial crisis levels. OBR head Robert Chote cited extreme uncertainty around evaluating growth prospects; however, he highlighted the disappointing productivity growth of the last quarter of 2015, explaining that “we have placed more weight on that as a guide to future prospects”.

The report follows other forecasts from the Bank of England and OECD with lowered UK growth projections. Financial markets appear to be concluding from this doom and gloom that interest rates will not rise until the end of the decade, with a potential near-term cut.

Meanwhile, the chancellor claimed that he was on target to reach a budget surplus by 2019-20. In its budget policy paper, HM Treasury acknowledged weaker productivity growth but highlighted the OECD’s prediction that the UK would grow faster than any other G7 economy this year. It outlined plans for additional savings equivalent to 0.5% of total government spending, “to ensure the nation lives within its means”. Meanwhile, a host of further initiatives were introduced, designed to reduce the deficit and bring reforms which would ensure “Britain is fit for the future”.

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