Good news or bad news first?
Bad news out of the way first - the UK was not the fastest growing country in the G7. We slipped back to no. 2.
Our recent blog looked at some of the challenges with forecasting through these uncertain times.
Growth upgrades for 2017
But this year looks like a better year for UK GDP growth than the OBR expected in the autumn. In line with the Bank of England’s recent upgrade, the OBR sees 2% growth this year, but weaker pace of expansion thereafter. This means that by 2021 we won’t have noticed the difference.
Our latest Manufacturing Outlook looked at what is happening with manufacturing growth since the start of this year.
Weaker trade expectations hitting the long term view
The OBR expects that the negotiation of new trading arrangements with the EU and others will slow the pace of import and export growth for the next 10 years. A view that will surely be hotly contested in parts of Whitehall.
Later this week we’ll be getting trade data for January.
Business defiant in face of Brexit?
The OBR is upbeat about business investment prospects with decent growth pencilled in for 2018 and 2019. Yes, survey indicators have pointed to a brighter outlook for investment, but the risks are surely skewed to the downside the closer we get to March 2019.
Short-term bump for the public finances
The Budget deficit for 2016-17 is expected to be significantly lower than was forecast in the autumn - down from £68.2 billion to £51.7 billion. Public sector net borrowing as a percentage of GDP will fall from 3.8% to 2.6% this year.
Not much of that bump is structural
The fall in public sector net borrowing is largely reflecting one-off factors and timing effects that flatter the figures at the expense of next year. As a result borrowing is expected to rise next year before falling every year for the rest of forecast period.
Fiscal headroom preserved
There were no surprises here from the Chancellor; it was widely expected that he’d pocket any improvement in the public finance forecasts, just in case he was required to bring forward some serious support for the economy in the future.
Productivity 10 Brexit 0
Mentions of the words in the Chancellors speech, not to be confused with aggregate scores from last night’s Champion League’s game.
Spending the £23bn National Productivity Investment Fund (NPIF)
Continuation of the productivity narrative from both the autumn statement and the recent industrial strategy green paper is to be welcomed. Chopping and changing priorities at every turn does not create the stable and predictable business environment companies need to invest. Rather, we got more detail on how the NPIF, announced back in November, will start to be spent.
Here is what we said about Autumn Statement.
Students and Science
£300 million investment for new academic research placements and £270 million to launch the Industrial Strategy Challenge Fund with initial funding to support research and innovation in areas like artificial intelligence and robotics and designing and manufacturing batteries for electric vehicles. Not our first choice, but this is wave one after all.
Beyond the apprenticeship levy
It’s happening, but how else can we ensure the UK is developing the skills businesses will need now and in the future … with new T-levels for 16 to 19 year old technical students and maintenance loans for students studying at technical levels 4 to 6. This is some real funding behind the Sainsbury reform recommendations.
But if you still want to know more about the levy, attend one of our seminars.
The changing nature of work makes retraining and reskilling essential and so the government will spend up to £40 million by 2018-19 to test different approaches to help people to retrain and upskill throughout their working lives. Potential changes to migration rule means these pilots and subsequent funding levels will be worth paying close attention to.
Ensuring the UK’s R&D environment remains ‘profoundly pro-innovation’
The R&D tax credit got the thumbs up from pretty much everyone in the recent review. The next wave of improvements will make administrative changes to increase certainty for large claimants. HMRC will test several options to improve certainty and awareness of R&D relief in autumn 2017. But the other ways to make it even more brilliant will be kept under review.
We had some thoughts on how it could be made even more brilliant
A fibre what?
Fibre spine. The chancellor’s announcement that a full fibre network will be built by leveraging public sector buildings to serve as anchor customers will help improve the viability and feasibility of new fibre infrastructure, supporting the building of a reliable, resilient and world-class fibre spine across the country. This came close to what we wanted.
Getting rid of those headlines on business rates
All the brouhaha about business rates revaluations did indeed prompt some action from the Chancellor. There will be a £300m fund for local authorities to support business through discretionary relief and further targeted support for those moving out of small business rates relief. Doesn’t deal with the plant and machinery issue though….
But the highlighted review was always going to happen
The speech mentioned a review that would be undertaken before the next revaluation on the frequency of revaluations. This was always going to be a thing and therefore not likely to be (another) fundamental review of the system.
No sharp intakes of breath
No rabbits from hats, no rooting down the back of the sofa etc.. Opting not to go out with a bang on the final spring budget (well for now anyway) was a good thing.
This statement shows government sticking with the challenge of raising productivity levels in the UK economy. The alignment with industrial strategy priorities will be welcomed by businesses as demonstrating signs of much-needed cross-government coherence. Not to mention a return of prudence with a purpose when it comes to the public finances.