Chancellor of the Exchequer, Philip Hammond, offered an optimistic vision of the country’s future when he delivered his first Autumn Budget, and the second Budget of 2017, on 22 November. However, the latest economic forecasts from the Office for Budget Responsibility (OBR), which were released alongside the Budget Statement, painted a much gloomier picture of Britain’s future prospects.
The Chancellor was under intense political pressure to deliver a Budget that would revive his party’s flagging fortunes when he stood up at the dispatch box to deliver his Statement. And the abolition of stamp duty for most first-time buyers, along with an array of other housing initiatives, was the flagship announcement designed to provide a boost to the government’s popularity.
In total, the Chancellor announced a package of housing measures worth around £44 billion over the next five years, which he hopes will help achieve the government’s long-term aspiration of building 300,000 new homes a year. The headline announcement was that stamp duty is to be abolished immediately for first-time buyers purchasing properties worth up to £300,000, with the Chancellor promising to make home ownership “a reality, not just a dream” for young people currently priced out of the market.
However, it was the OBR’s gloomy economic forecasts that cast a shadow over this Budget. The government’s independent economic forecaster confirmed that growth prospects have weakened significantly over the past six months, with their economic growth forecast downgraded to 1.5% for 2017, half a percentage point lower than the 2.0% prediction at the time of the Spring Budget.
This reduction largely stems from a much anticipated downward revision to the UK’s long-term productivity rates. Indeed, the downgrade to productivity has resulted in predicted growth slowing to 1.4% next year and 1.3% in 2019, which would be the lowest growth rate since 2009, when the economy was still gripped by the financial crisis. Furthermore, according to the OBR’s predictions, the UK economy will now grow by less than 2% across every year of its five-year forecast horizon.
In addition, this weaker growth profile has resulted in an upward revision to the total amount of government borrowing now being forecast over the coming years. For example, by 2021-22 the OBR predicts that borrowing will cumulatively be £29 billion higher than it forecast in the Spring, although this increase does also partly reflect the Chancellor’s decision to ease the pace of austerity and the resulting impact of his Budget giveaways.
The Chancellor has responded to the gloomy economic forecasts by saying that he hopes to prove the OBR wrong. In an interview after the Budget he said: “The challenge for us now as a nation is to prove them wrong. The challenge for us is to deliver that higher productivity that will feed through into higher economic growth.” He also suggested that clarity around Brexit negotiations will have a positive impact on future growth prospects by boosting consumer confidence. Only time will tell whether it proves to be the OBR or the Chancellor that is correct.