The Office of Budget Responsibility has slashed its UK growth expectations over the five year term of its forecast horizon, with its 2018 estimate dropping from 1.6% to 1.4%, matching consensus expectation.
A substantial long-term downgrade had been widely expected, following last month’s admission by the OBR that sub-par productivity growth since the financial crash was likely permanent, not cyclical.
Its 2019 forecast fell from 1.7% to 1.3%, 2020 from 1.9% to 1.3% and 2021 unchanged at 1.5%.
Having repeatedly predicted a bounce in UK productivity - which has lagged both peer economies and its own historical performance since the crisis - the OBR in an evaluation of its forecasts last month admitted that it had been holding out for a recovery which now appeared unlikely to arrive.
‘Other things being equal, a downward revision to prospective productivity growth would weaken the medium-term outlook for the public finances,’ it wrote.
‘The downward revision to productivity is likely to have the largest quantitative impact’
Aberdeen Standard Investments chief economist Lucy O'Carroll said that the depth of the downgrades far outweighed the potential impact of any rabbits chancellor Philip Hammond was able to pull out of his hat.
'The OBR’s downgraded forecasts demonstrate that the scale of the challenges the UK faces far outweighs the impact of the measures he’s outlined,' she said.
'Today could have been a golden opportunity to take a distinct, long-term view of the UK’s prospects, tackling the country’s productivity performance head on.
'Unfortunately, the Chancellor lacks the political capital to take such a dynamic approach, and his cautious nature means he has probably barely considered it.'