No signal from Chancellor that age of austerity ending
Philip Hammond kept expectations low ahead of his new Budget-lite spring statement. He duly delivered what many would deem a non-event.
With no spending or taxation changes, the purpose was to provide an update of the economic and public finance forecasts. These were marginally better than the last set of projections. Context, however, is everything. You may recall November's forecast downgrades were viewed as something of a 'bloodbath' at the time.
The UK economy is set to slow to 1.5% in 2018 (up from 1.4% in November), and to 1.3% in 2019 and 2020. It is then set to 'accelerate' to 1.4% in 2021 and 1.5% in 2022. Back in March 2016, the Office for Budget Responsibility projected growth in excess of 2% each year from 2017-2020. Historically the only times the UK economy expanded at rates below 1.3/1.4% was when it was either in recession or transitioning into/out of one.
It is worth noting that the NI economy has consistently under-performed against the UK since the financial crisis. We can expect this trend to continue with the economy here stuck in a low growth gear of 1.0 - 1.5%. Both the UK and NI's rates of economic growth are sluggish by a historical perspective. It is also worth noting that the Organisation for Economic Co-operation and Development expects the UK to be the slowest growing economy in 2018 amongst the G-20 group of countries. The UK's poor economic growth rates come at a time when the global economic recovery is very strong.
Public Finances: The Chancellor said the borrowing requirement has fallen, but perhaps not by as much as expected. The UK still needs £45bn to balance the books in the current financial years, more than was projected two years ago. As the Institute for Fiscal Studies recently noted, we are not nearing the end of austerity. The state of the public finances remains challenging, particularly with the UK stuck in a slow growth lane. Tax increases will be unavoidable.
Richard Ramsey is chief economist of Ulster Bank