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 - - PowerPoint PPT Presentation

Apr 03, 2023 139 likes •795 views

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

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SLIDE 1

Economic and fiscal outlook

Robert Chote Chairman 13 March 2018

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SLIDE 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
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SLIDE 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
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Quarterly GDP growth

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

November 2017 March 2018

Percentage change on a quarter earlier

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SLIDE 5

Quarterly GDP growth

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

November 2017 March 2018

Percentage change on a quarter earlier

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SLIDE 6

Quarterly GDP growth

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

November 2017 March 2018

Percentage change on a quarter earlier

November: 1.8% in 2016 to 1.5% in 2017 March: 1.9% in 2016 to 1.7% in 2017

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SLIDE 7

GDP growth in the G7

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Q1 2016 Q2 Q3 Q4 Q1 2017 Q2 Q3 Q4

Percentage change on a year earlier

UK Canada France Germany Italy Japan US

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GDP growth in the G7

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Q1 2016 Q2 Q3 Q4 Q1 2017 Q2 Q3 Q4

Percentage change on a year earlier

UK Canada France Germany Italy Japan US

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SLIDE 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

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SLIDE 10

GDP growth: 5 measures

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Headline GDP (market prices)

2016 2017

Annual per cent change

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SLIDE 11

GDP growth: 5 measures

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Headline GDP (market prices) Output approach (basic prices) Income approach (basic prices) Expenditure approach (basic prices) Headline GVA (basic prices)

2016 2017

Annual per cent change

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SLIDE 12
  • 1.2
  • 0.8
  • 0.4

0.0 0.4 0.8 1.2 1.6 2.0

Real GDP Employment Output per worker Average hours per week Total hours worked Output per hour

November forecast Latest data Difference Percentage change: 17Q2 t o17Q4

Real GDP, labour input and productivity

Output per worker Output per hour

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SLIDE 13
  • 1.2
  • 0.8
  • 0.4

0.0 0.4 0.8 1.2 1.6 2.0

Real GDP Employment Output per worker Average hours per week Total hours worked Output per hour

November forecast Latest data Difference Percentage change: 17Q2 t o17Q4

Real GDP, labour input and productivity

Output per worker Output per hour

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SLIDE 14

Real GDP, labour input and productivity

  • 1.2
  • 0.8
  • 0.4

0.0 0.4 0.8 1.2 1.6 2.0

Real GDP Employment Output per worker Average hours per week Total hours worked Output per hour

November forecast Latest data Difference Percentage change: 17Q2 t o17Q4

Output per worker Output per hour

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SLIDE 15

Productivity

80 85 90 95 100 105 110 115 120

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 June 2010 Successive forecasts November 2017 March 2018 Outturn (November) Outturn (March) 2009Q1 = 100

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Output versus potential

  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4

Q1 2008 Q3 Q1 2009 Q3 Q1 2010 Q3 Q1 2011 Q3 Q1 2012 Q3 Q1 2013 Q3 Q1 2014 Q3 Q1 2015 Q3 Q1 2016 Q3 Q1 2017 Q3

Range of estimates OBR estimate

Per cent

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Quarterly GDP growth

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2015 2016 2017 2018 2019 2020 2021 2022 2023

November 2017 March 2018

Percentage change on a quarter earlier

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SLIDE 18

GDP growth

  • 2
  • 1

1 2 3 4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Per cent

November

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SLIDE 19

GDP growth

1.9 1.7 1.5 1.3 1.3 1.4 1.5

  • 2
  • 1

1 2 3 4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Per cent

November March

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SLIDE 20

GDP growth

  • 2
  • 1

1 2 3 4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Per cent

November March

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SLIDE 21

CPI inflation

1 2 3 4 5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Per cent

November March

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Nominal GDP growth

Cumulative percentage growth, 2017-18 to 2022-23

November March Difference Real GDP

7.3 7.0

  • 0.2

Nominal GDP

16.3 16.3

  • 0.1

Wages and salaries

15.5 15.7 0.2

Non-North Sea profits

17.2 17.5 0.3

Nominal consumer spending

17.8 17.0

  • 0.8

Real business investment

12.4 11.5

  • 0.9
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SLIDE 23

Public sector net borrowing

20 40 60 80 100 120 140 160 180

November 2017 March 2018

£ billion

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SLIDE 24

Public sector net borrowing

20 40 60 80 100 120 140 160 180

November 2017 March 2018

£ billion

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Public sector net borrowing

20 40 60 80 100 120 140 160 180

November 2017 March 2018

£ billion

  • 4.7-2.4-0.8
  • 4.0-4.1-4.2
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SLIDE 26

Change in PSNB

Underlying receipts Underlying spending Government decisions Total

  • 4.7
  • 2.4
  • 0.8
  • 4.0
  • 4.1
  • 4.2
  • 10
  • 5

5 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 27

Change in PSNB

Underlying receipts Underlying spending Government decisions Total

  • 10
  • 5

5 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 28

Change in PSNB

Underlying receipts Underlying spending Government decisions Total

  • 10
  • 5

5 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 29

Change in PSNB

Underlying receipts Underlying spending Government decisions Total

  • 10
  • 5

5 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 30

Underlying receipts revisions

6.8 5.6 7.2 6.8 4.9 4.4

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion SA IT Other IT/NICs Onshore CT CGT Other Total

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SLIDE 31

Underlying receipts revisions

SA IT Other IT/NICs Onshore CT CGT Other Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 32

Underlying receipts revisions

SA IT Other IT/NICs Onshore CT CGT Other Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 33

Underlying receipts revisions

SA IT Other IT/NICs Onshore CT CGT Other Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 34

Underlying receipts revisions

6.8 5.6 7.2 6.8 4.9 4.4

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion SA IT Other IT/NICs Onshore CT CGT Other Total

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SLIDE 35

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

2.0 3.0 6.0 3.1 0.8

  • 0.1
  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 36

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 37

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 38

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 39

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 40

Underlying spending revisions

Debt interest spending Local authority current spending Departmental spending (DEL) Welfare spending Other spending Total

2.0 3.0 6.0 3.1 0.8

  • 0.1
  • 4
  • 2

2 4 6 8 10

17-18 18-19 19-20 20-21 21-22 22-23

£ billion

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SLIDE 41

Forecast revision in context

  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0

Nov 10 Mar 11 Nov 11 Mar 12 Dec 12 Mar 13 Dec 13 Mar 14 Dec 14 Mar 15 July 15 Nov 15 Mar 16 Nov 16 Mar 17 Nov 17 Mar 18

Other spending Receipts Debt interest Underlying change

Size of cash revision over five years (rebased to historic nominal GDP forecasts)

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Borrowing through the year

10 20 30 40 50 60 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

£ billion

2016-17 2017-18

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SLIDE 43

The Government’s targets

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Structural borrowing

  • 2

2 4 6 8 10

2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22

Per cent of GDP

November March Outturn

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SLIDE 45

Structural borrowing

  • 2

2 4 6 8 10

2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22

Per cent of GDP

November March Outturn

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Structural and cyclical revisions to borrowing

Target year

  • 0.3
  • 0.2
  • 0.1

0.0 0.1 0.2 17-18 18-19 19-20 20-21 21-22 22-23 Per cent of GDP Structural Cyclical Overall revision

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SLIDE 47

Structural borrowing

  • 2

2 4 6 8 10

2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22

Per cent of GDP

November March Outturn

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SLIDE 48

Current budget balance

  • 60
  • 40
  • 20

20 40 60 80 100 120 March (Current budget) March (CA current budget)

£ billion

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SLIDE 49

Current budget balance

  • 60
  • 40
  • 20

20 40 60 80 100 120 March (Current budget) March (CA current budget)

£ billion

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SLIDE 50

Public sector balance sheet

10 20 30 40 50 60 70 80 90 100

99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16 17-18 19-20 21-22

Per cent of GDP

PSND (November) PSND (March) PSND ex.BoE PSNFL

Debt falls 3.0 per cent of GDP in 2020-21

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SLIDE 51

Public sector balance sheet

10 20 30 40 50 60 70 80 90 100

99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16 17-18 19-20 21-22

Per cent of GDP

PSND (November) PSND (March) PSND ex.BoE PSNFL

Debt falls 3.0 per cent of GDP in 2020-21

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Year-on-year changes in the debt-to-GDP ratio

  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 6

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

per cent of GDP

Reclassification of English HAs Other factors Monetary policy UKAR and other asset sales Growth-interest differential Primary balance Net lending to the private sector Total change

Target year

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Public sector balance sheet

10 20 30 40 50 60 70 80 90 100

99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16 17-18 19-20 21-22

Per cent of GDP

PSND (November) PSND (March) PSND ex.BoE PSNFL

Debt falls 3.0 per cent of GDP in 2020-21

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The welfare cap

£ billion

17-18 18-19 19-20 20-21 21-22 22-23 November 2017 Welfare cap (restated) Welfare cap and pathway plus margin 119.9 122.1 123.8 126.4 130.2 134.1 November forecast adjusted for inflation 118.6 120.7 121.8 123.1 125.8 128.7 Forecast revisions since November

  • 0.7
  • 0.2
  • 0.2
  • 0.7
  • 1.3
  • 1.5

Headroom (March)

  • 1.3
  • 1.4
  • 2.0
  • 3.3
  • 4.4
  • 5.4
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SLIDE 55

The ‘fiscal objective’

The Charter commits the Government to

  • “return the public finances to balance at the earliest possible date

in the next Parliament” Still challenging

  • Deficit still 0.9% of GDP in 2022-23, down from 1.1% in November
  • If deficit were to continue falling at post Spending Review rate it

would not balance until 2027-28 (2030-31 in November)

  • And ageing and other spending pressures in health
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SLIDE 56

The Brexit withdrawal settlement

Our forecast incorporates ‘fiscally neutral’ assumption

  • Savings from EU contributions assumed spent elsewhere
  • Could include divorce bill, replacement or other spending

Enough detail now to set out size and timing of divorce bill

  • But still uncertainties around this
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SLIDE 57

Components of the divorce bill

Continue present contributions to 2020

  • €8.1bn in 2019 and €10.4bn in 2020

Share of outstanding commitments at 2020

  • Total ‘reste a liquider’ of €256.4bn
  • UK share estimated at 12.4 per cent
  • Payment net of receipts €20.2bn over 8 years

UK share of assets and liabilities

  • €2.7bn over many decades
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SLIDE 58

Liabilities and assets payment profile

  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064

€ billion

2020 surplus European Central Bank Financial instruments Guarantee fund for external actions European fund for strategic investments Recoverables Fines European Investment Bank Pension liabilities Net total

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SLIDE 59

Annual path of financial settlement payments

  • 1

1 2 3 4 5 6 7 8 9 10 11

2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064

€ billion

€ billion £ billion Total 41.4 37.1 Payments to 2020 18.5 16.4 RAL share 20.2 18.2 Assets/liabilities 2.7 2.5

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SLIDE 60

EU transfers, financial settlement and other assumed spending

2 4 6 8 10 12 14 16 18 20

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

EU contributions Assumed spending in lieu of EU transfers Financial settlement transfers ‘No- referendum’ counterfactual

£ billion

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SLIDE 61

EU transfers, financial settlement and other assumed spending

2 4 6 8 10 12 14 16 18 20

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

EU contributions Assumed spending in lieu of EU transfers Financial settlement transfers ‘No- referendum’ counterfactual

£ billion

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SLIDE 62

EU transfers, financial settlement and other assumed spending

2 4 6 8 10 12 14 16 18 20

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

EU contributions Assumed spending in lieu of EU transfers Financial settlement transfers ‘No- referendum’ counterfactual

£ billion

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SLIDE 63

EU transfers, financial settlement and other assumed spending

2 4 6 8 10 12 14 16 18 20

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

EU contributions Assumed spending in lieu of EU transfers Financial settlement transfers ‘No- referendum’ counterfactual

£ billion

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SLIDE 64

Conclusion

  • Economy and public finances have done slightly

better than forecast in November

  • But medium-term outlook broadly the same
  • And margin against targets virtually unchanged
  • Deficit well down from crisis and some debt

measures turning

  • But many risks and uncertainties