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OBR cuts growth forecast, highlights Brexit risk

The Office for Budget Responsibility lowered the outlook for the UK economy and highlighted the risks of a British exit from Europe. That means more spending cuts.

 
OBR cuts growth forecast, highlights Brexit risk

The Office for Budget Responsibility (OBR), the independent economic watchdog founded by the government six years ago, has revised down the outlook for the UK economy in response to the global slowdown and highlighted the risks of a British exit from the European Union.

Delivering his annual Budget, chancellor George Osborne revealed the OBR had reduced its forecast growth for the UK economy this year to 2% from the 2.2% it anticipated in November. Growth in 2017 is also forecast to be lower at 2.2%, down from the previous forecast of 2.5%.  

Osborne said the OBR, headed by Robert Chote, had also revised down its longer-term forecast, from 2.5% in 2018 and 2.4% in 2019, both now expected to come in at 2.1%.

The long-term revisions are sharply lower than consensus forecasts, which had predicted annualised growth of 2.3% from 2017 out to 2020.  

They have necessitated another £14 billion of Budget measures so Osborne can hit his fiscal target of a £10.4 billion surplus by 2019. These include another £3.5 billion of spending cuts and extracting £9 billion of taxes from multinationals, although corporation tax will be lowered again and other measures aimed at helping smaller businesses. 

The chancellor said the UK economy remained vulnerable to global factors such as the recent shake-out of global commodities and emerging markets he added.

'Financial markets are turbulent, productivity growth across the western world remains too low,' said Osborne. 'It makes for a dangerous cocktail of risks.' 

However, he warned these figures were based on the assumption the UK would remain an EU member. 'The OBR are explicit today that their forecasts are predicated on Britain remaining in the UK,' he said.

The chancellor added the watchdog had said the UK faced a period of 'disruptive uncertainty' if the UK votes to leave the EU.

Osborne said Britain's economy would be stronger as a member of the EU. 'A vote to leave ... could usher in an extended period of uncertainty regarding the precise terms of the UK's relationship with the EU,' he added to a chorus of jeers from Tory backbenchers opposed to EU membership.

'Britain will be stronger, safe and better off inside the EU,' he insisted.

The OBR noted that global growth was 'materially weaker' than at the time of November's Autumn Statement. In common with many other model-based forecasters such as the IMF, Organisation for Economic Cooperation and Development and many global banks, the OBR has been criticised for consistently over-estimating growth potential.

There was better news on jobs with the OBR edging up its forecast for employment to 31.6 million this year, with wages predicted to grow ahead of inflation by 3.6% this year and by 4% a year until 2020.

Nevertheless, low inflation has shrunk the total size of the economy and the delayed sale of the government's stake in Lloyds Banking Group threatened Osborne's timetable to balance the books. This means more austerity in the public sector and welfare spending. The Treasury says the £3.5 billion of spending cuts represent just 0.5% of total spending planned for 2019 but they follow last year's spending review which axed public sector expenditure by £21.5 billion with £9 billion reinvested in priority projects. 

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