The economic recovery is underway in the UK. The OBR has updated its forecasts for GDP growth to 2.7% in 2014 and 2.3% in 2015, very similar to the projections in our latest UK Economic Outlook report of 2.6% this year and 2.4% next year.
Headline borrowing forecasts were down, but the structural budget deficit remains relatively large in the UK, as shown in Figure 2. The Chancellor therefore had limited room for manoeuvre and delivered a ‘swings and roundabouts’ Budget where ‘giveaways’ were broadly balanced by ‘takeaways’. which impacts the micro level of the economy more than the macro level.
There is a lot more austerity to come, as reflected by the Chancellor’s new welfare spending cap, and projected real government spending cuts stretching out to 2018/19.
Nonetheless, the Chancellor did announce some pro-growth measures which will provide a boost for business, including cuts in energy costs, a temporary rise in tax allowances for investment and more and cheaper export credit finance. While welcome, these measures are unlikely to be large enough to change the macroeconomic outlook for the UK economy as a whole.
More details of this report are available at: http://www.pwc.co.uk/ukeo
Fig 2 - Of the G7 and peripheral Eurozone economies, only Japan has a bigger structural deficit than the UK