Budget 2017: Government’s economic growth forecasts revised down significantly
Government forecasts have been significantly revised down following a belated acknowledgement of the UK’s poor productivity performance since the financial crisis.
The British economy will grow by 1.4 per cent in 2018, much lower than previous forecasts of a 1.6 per cent expansion, according to forecasts from the Office for Budget Responsibility (OBR) announced today by chancellor Philip Hammond in the Autumn Budget announcement.
The economy’s expansion in 2019 will only be 1.3 per cent, down from previous expectations of 1.7 per cent. The downgrade in 2020 was even larger, from 1.9 per cent to 1.3 per cent.
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Hammond seized on the OBR’s prediction that there would be more than 600,000 jobs by the end of the forecast period, but that was not enough to distract from dismal productivity predictions.
“Regrettably, our productivity performance continues to disappoint,” Hammond said.
Productivity growth will “remain significantly lower than its pre-crisis trend rate”, the OBR said in its economic outlook. On average trend productivity growth will be 0.7 percentage points lower per year, reaching only 1.2 per cent in 2022.
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Productivity growth averaged 2.1 per cent a year in the pre-crisis period, but has averaged just 0.2 per cent over the past five years. In March that productivity growth was predicted to rise slowly to reach 1.8 per cent annually in 2021.
The productivity downgrade had been widely expected after the OBR last month said it expected to “significantly” reduce its long-term forecasts for rate of efficiency of the UK economy. The OBR had assumed in 16 successive forecasts that productivity would improve to pre-financial crisis levels, but finally accepted it is unlikely to bounce back up a decade on.
Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), said the productivity downgrades were “disappointing but not suprising”. She said: “We’re in a period of more challenging conditions for the economy.”
However, some of the measures announced by the chancellor might help to “tackle some of those issues that have been holding back the UK economy.”
An additional £8bn for the national productivity investment fund as well as action on business rates and funding for local transport could help businesses to grow, Newton-Smith said.
Sterling slipped against the US dollar as the growth forecasts were announced, reaching lows of $1.3211, before rising to highs of $1.3282.
Read more: Office for Budget Responsibility to slash productivity growth forecast