EEF blog

OBR economic forecasts, the key points:

The OBR’s overall assessment of the outlook and risks for the UK economy is broadly unchanged from November.

GDP growth fell marginally in the final quarter of 2011. But the recent signs suggest momentum has returned to the economy and we should avoid technical recession. Upward revision of 0.1 percentage points relative to November forecast, reflects this

Euro area problems remain a risk: their central forecast assumes that the euro area finds a sustainable solution to its current problems.

GDP forecast to grow by around 0.8% this year, the same rate as in 2011. With beneficial effects of falling inflation to be offset by uncertainty over the euro area and tighter credit conditions

Business investment forecasts lower because the OBR thinks that balance sheets may not be as strong as official statistics suggest. They expect a boost to the level of business investment of 1 per cent from the corporation tax rate cut announced in the Budget.

Smaller drag on GDP growth from real government consumption

Household consumption will stabilise in 2014 when real income growth returns

Labour market forecast similar to November’s: ILO unemployment rate to rise from its current level of 8.4% to 8.7% over the coming year, as euro area concerns and tighter credit cause continued cyclical weakness.

OBR fiscal forecasts, the key points:

Public sector net borrowing (PSNB) is forecast to total £126 billion this year, £1.1 billion less than forecast in November. PSNB has now fallen by 2.8% of GDP since its post-war peak in 2009-10.

OBR central forecast shows borrowing falling at roughly the same rate on average over the next five years, reaching £21 billion or 1.1% of GDP in 2016-17.

Public sector net debt (PSND) is expected to rise from 67.3 per cent of GDP this year to a peak of 76.3 per cent in 2014-15, falling thereafter. The expected peak is about 1.7% of GDP lower than the OBR forecast in November, largely reflecting the Royal Mail transfer (but the long-term impact of this is likely to be negative)

The impact of the Budget measures on borrowing is broadly neutral across the forecast period, with net ‘giveaways’ and ‘takeaways’ no larger than £2 billion in any year.