A still solid growth outlook
The Office for Budget Responsibility (OBR) has marginally revised upwards its outlook for growth this year, to 2.5% from 2.4% due to higher government spending. Growth in 2016 has also been raised to 2.3% from 2.2%. Thereafter, growth is expected to be around 2.3% through to 2019 – almost identical to the outlook back in December. The contribution from net trade to the UK’s growth over the forecast period was revised down in December and it has been cut again. The subdued global growth environment is expected to take its toll on exports.
The biggest change to the forecast comes via inflation. Prices are expected to rise just 0.2% this year and 1.2% next year. Even in 2017 and 2018 prices are expected to rise at a rate below the Bank of England’s target of 2%. In other words, UK households are expected to benefit from the low inflation environment for some time to come. Another noticeable change is in business investment. It’s volatile and hard to predict but the 5% rise this year is lower than the 8%+ rise that was forecast back in December. But the outlook for business investment remains pretty robust through the forecast period.
Overall the OBR’s outlook can be characterised as one of solid growth supported by consumer spending, business investment and subdued inflation as government steps back and export-led growth fails to materialise.
A little less severity from austerity
As every debtor, including the UK, knows, lower inflation tends to mean lower interest rates and interest payments. Public sector borrowing has been revised down by an average of £1.3 billion a year on average between 2015/16 and 2018/19. That’s small beer alongside public sector borrowing of £115bn in the next two financial years alone, but useful nonetheless.
Spending is forecast to be higher later in the decade around the end of the next parliament. This largesse causes the 2019/20 surplus to fall to £7.1bn from £23bn back in December. That will result in public spending as a share of GDP falling to levels last seen in 2000 instead of the 1930s as was the case in December.
The government’s stock of debt is expected to peak in the current financial year at 80.4% of GDP and begin gradually to decline in the coming financial year. That’s a year earlier than thought back in December. But this shouldn’t fog the road ahead on the long and difficult journey of reducing the budget deficit.
Help to Buy…again
A ‘Help to Buy ISA provides more help for first-time buyers. For every £200 of savings toward a deposit the government will give £50 up to a maximum of £3,000. So a first-time buyer that has saved £12,000 receives £3,000 from the government.
Support for savers, taxpayers….
The Help to Buy ISA wasn’t the only boost to savers. A £1,000 personal savings allowance was introduced (£500 for higher rate taxpayers). But higher earning pensions were targeted. The lifetime allowance on workplace pensions was reduced to £1 million from £1.25 million.
A sharp rise in the personal allowance has been one of the key features of this government. It had already been announced that it would rise to £10,600 next month. It will now rise to £10,800 next year and £11,000 the year after. The threshold for the higher tax rate will also rise, reaching £43,300 in 2017. Self-assessment tax forms will be abolished from next year as tax accounts will be managed online.
and the North Sea too
There was good news for the North East of Scotland. Petroleum Revenue Tax was cut from 50% to 35% while the supplementary charge was cut from 30% to 20%. Motorists will welcome a freeze on fuel duty while those fond of a tipple will welcome the 1p cut in the cost of a pint. Duty on cider and whisky was also reduced by 2%.