UK budget reveals forecast of further cuts in productivity and growth
Growth forecasts for the UK economy have been cut sharply following changes to estimates of productivity and business investment.
The Office for Budget Responsibility (OBR) now expects the economy to grow by 1.5% this year, down from the estimate of 2% it made in March.
Growth, it says, will drop to 1.3% by 2020 and then rise to 1.5% in 2021. The OBR also expects borrowing as a share of economic output will fall, but not as fast as it expected in March.
It forecasts that borrowing this year will be 2.4% of Gross Domestic Product (GDP), rather than its March prediction of 2.9%.
By 2021, it says that percentage will be down to 1.3%. However, in March, it had expected borrowing to have fallen to 0.7% of GDP by then.
In his Budget speech, the Chancellor, Philip Hammond, said: “Regrettably our productivity performance continues to disappoint. Today the OBR revised down the outlook for productivity growth, business investment and GDP growth.”
The OBR says in its Economic and Fiscal Outlook report that the impact of lower productivity means that GDP will grow by 5.7% over the next five years rather than by the 7.5% as it estimated in March.
It added: “We expect real GDP growth to slow from 1.5% this year to 1.4% in 2018 and 1.3% in 2019, as public spending cuts intensify and Brexit-related uncertainty continues to bear down on activity.”
On unemployment, the OBR said it believed the rate was now as low as it is going to go.
“We expect the rate to trough at 4.3% of the labour force – its current rate – in the second half of this year, and then to edge up as GDP growth slows a little further and the National Living Wage prices some workers out of employment.”