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Economic and fiscal outlook Robert Chote Chairman 13 March 2018 - PowerPoint PPT Presentation

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Economic and fiscal outlook Robert Chote Chairman 13 March 2018 Coverage and process Five year forecasts, plus assessment of targets Independent BRC responsible for conclusions Sent near-final forecast to Chancellor on 28

  1. Economic and fiscal outlook Robert Chote Chairman 13 March 2018

  2. Coverage and process • Five year forecasts, plus assessment of targets • Independent BRC responsible for conclusions • Sent near-final forecast to Chancellor on 28 February • Met with Chancellor and officials on the same day • Draft document shared last Wednesday • No pressure to change anything

  3. Key points • Outlook for economy and public finances little changed • Slightly stronger GDP growth near-term, thanks to world economy • But no change to medium-term growth potential • Budget deficit revised down by £4.7bn this year, then by less • Margin against fiscal targets virtually unchanged • Balancing the budget still looks very challenging • Brexit ‘divorce bill’ within Treasury range at £37.1bn

  4. Quarterly GDP growth 0.8 Percentage change on a quarter earlier November 2017 0.7 March 2018 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

  5. Quarterly GDP growth 0.8 Percentage change on a quarter earlier November 2017 0.7 March 2018 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

  6. Quarterly GDP growth 0.8 Percentage change on a quarter earlier November 2017 0.7 March 2018 0.6 0.5 0.4 0.3 0.2 November: 1.8% in 2016 to 1.5% in 2017 0.1 March: 1.9% in 2016 to 1.7% in 2017 0.0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

  7. GDP growth in the G7 4.0 UK Canada 3.5 Percentage change on a year earlier France Germany 3.0 Italy Japan 2.5 US 2.0 1.5 1.0 0.5 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017

  8. GDP growth in the G7 4.0 UK Canada 3.5 Percentage change on a year earlier France Germany 3.0 Italy Japan 2.5 US 2.0 1.5 1.0 0.5 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017

  9. Post referendum judgements • Weaker net inward migration – Yes, down from 336k to 244k • Inflation squeeze on consumers – Yes, but consumers have saved less • Weaker business investment – Yes, but not as bad as expected • Boost from net trade – Yes, but weaker than expected

  10. GDP growth: 5 measures 3.0 2016 2017 2.5 Annual per cent change 2.0 1.5 1.0 0.5 0.0 Headline GDP (market prices)

  11. GDP growth: 5 measures 3.0 2016 2017 2.5 Annual per cent change 2.0 1.5 1.0 0.5 0.0 Headline GDP Output approach Income approach Expenditure Headline GVA (market prices) (basic prices) (basic prices) approach (basic (basic prices) prices)

  12. Real GDP, labour input and productivity 2.0 Output per worker Output per hour Percentage change: 17Q2 t o17Q4 1.6 1.2 0.8 0.4 0.0 -0.4 November forecast Latest data -0.8 Difference -1.2 Real GDP Employment Output per Average hours Total hours Output per worker per week worked hour

  13. Real GDP, labour input and productivity 2.0 Output per worker Output per hour Percentage change: 17Q2 t o17Q4 1.6 1.2 0.8 0.4 0.0 -0.4 November forecast Latest data -0.8 Difference -1.2 Real GDP Employment Output per Average hours Total hours Output per worker per week worked hour

  14. Real GDP, labour input and productivity 2.0 Output per worker Output per hour Percentage change: 17Q2 t o17Q4 1.6 1.2 0.8 0.4 0.0 -0.4 November forecast Latest data -0.8 Difference -1.2 Real GDP Employment Output per Average hours Total hours Output per worker per week worked hour

  15. Productivity 120 June 2010 Successive forecasts 115 November 2017 March 2018 110 Outturn (November) 2009Q1 = 100 Outturn (March) 105 100 95 90 85 80 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

  16. Output versus potential 4 Range of estimates OBR estimate 3 2 1 0 Per cent -1 -2 -3 -4 -5 -6 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

  17. Quarterly GDP growth 0.8 0.7 Percentage change on a quarter earlier 0.6 0.5 0.4 0.3 0.2 November 2017 0.1 March 2018 0.0 2015 2016 2017 2018 2019 2020 2021 2022 2023

  18. GDP growth 4 November 3 2 Per cent 1 0 -1 -2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

  19. GDP growth 4 November March 3 1.9 2 1.7 Per cent 1.5 1.5 1.4 1.3 1.3 1 0 -1 -2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

  20. GDP growth 4 November March 3 2 Per cent 1 0 -1 -2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

  21. CPI inflation 5 November March 4 3 Per cent 2 1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

  22. Nominal GDP growth Cumulative percentage November March Difference growth, 2017-18 to 2022-23 7.3 7.0 -0.2 Real GDP 16.3 16.3 -0.1 Nominal GDP 15.5 15.7 0.2 Wages and salaries 17.2 17.5 0.3 Non-North Sea profits Nominal consumer -0.8 17.8 17.0 spending 12.4 11.5 -0.9 Real business investment

  23. Public sector net borrowing 180 November 2017 160 March 2018 140 120 £ billion 100 80 60 40 20 0

  24. Public sector net borrowing 180 November 2017 160 March 2018 140 120 £ billion 100 80 60 40 20 0

  25. Public sector net borrowing 180 November 2017 160 March 2018 140 120 £ billion 100 80 60 40 -4.7 -2.4 -0.8 20 -4.0-4.1-4.2 0

  26. Change in PSNB 10 Underlying 5 receipts Underlying £ billion spending 0 -0.8 Government decisions -2.4 -5 -4.0 -4.1 -4.2 -4.7 Total -10 17-18 18-19 19-20 20-21 21-22 22-23

  27. Change in PSNB 10 Underlying 5 receipts Underlying £ billion spending 0 Government decisions -5 Total -10 17-18 18-19 19-20 20-21 21-22 22-23

  28. Change in PSNB 10 Underlying 5 receipts Underlying £ billion spending 0 Government decisions -5 Total -10 17-18 18-19 19-20 20-21 21-22 22-23

  29. Change in PSNB 10 Underlying 5 receipts Underlying £ billion spending 0 Government decisions -5 Total -10 17-18 18-19 19-20 20-21 21-22 22-23

  30. Underlying receipts revisions 10 7.2 6.8 6.8 8 4.4 SA IT 4.9 5.6 6 Other IT/NICs £ billion 4 Onshore CT CGT 2 Other 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  31. Underlying receipts revisions 10 8 SA IT 6 Other IT/NICs £ billion 4 Onshore CT CGT 2 Other 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  32. Underlying receipts revisions 10 8 SA IT 6 Other IT/NICs £ billion 4 Onshore CT CGT 2 Other 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  33. Underlying receipts revisions 10 8 SA IT 6 Other IT/NICs £ billion 4 Onshore CT CGT 2 Other 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  34. Underlying receipts revisions 10 7.2 6.8 6.8 8 4.4 SA IT 4.9 5.6 6 Other IT/NICs £ billion 4 Onshore CT CGT 2 Other 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  35. Underlying spending revisions 10 8 Debt interest 6.0 spending Local authority 6 current spending 3.1 3.0 Departmental £ billion 4 0.8 spending (DEL) 2.0 -0.1 Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  36. Underlying spending revisions 10 8 Debt interest spending Local authority 6 current spending Departmental £ billion 4 spending (DEL) Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  37. Underlying spending revisions 10 8 Debt interest spending Local authority 6 current spending Departmental £ billion 4 spending (DEL) Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  38. Underlying spending revisions 10 8 Debt interest spending Local authority 6 current spending Departmental £ billion 4 spending (DEL) Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  39. Underlying spending revisions 10 8 Debt interest spending Local authority 6 current spending Departmental £ billion 4 spending (DEL) Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  40. Underlying spending revisions 10 8 Debt interest 6.0 spending Local authority 6 current spending 3.1 3.0 Departmental £ billion 4 0.8 spending (DEL) 2.0 -0.1 Welfare spending 2 Other spending 0 Total -2 -4 17-18 18-19 19-20 20-21 21-22 22-23

  41. Forecast revision in context 2.0 (rebased to historic nominal GDP forecasts) Size of cash revision over five years 1.5 1.0 0.5 0.0 -0.5 -1.0 Other spending Receipts Debt interest Underlying change -1.5 Nov Mar Nov Mar Dec Mar Dec Mar Dec Mar July Nov Mar Nov Mar Nov Mar 10 11 11 12 12 13 13 14 14 15 15 15 16 16 17 17 18

  42. Borrowing through the year 60 2016-17 50 2017-18 40 £ billion 30 20 10 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

  43. The Government’s targets

  44. Structural borrowing 10 November March Outturn 8 6 Per cent of GDP 4 2 0 -2 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22

  45. Structural borrowing 10 November March Outturn 8 6 Per cent of GDP 4 2 0 -2 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22

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