Budget: Chancellor reveals 1.3% UK growth forecast for 2019, lower public debt

Oliver Haill WebFG News | 22 Nov, 2017 13:01 - Updated: 14:12 | | |

chancellor philip hammond
Chancellor Philip Hammond

UK gross domestic product growth is expected to be even worse than expected in coming years due to lower productivity, public spending cuts and Brexit-related uncertainty, with growth expected to slow to just 1.3% for two years from 2019.

As part of his Budget statement, Chancellor Philip Hammond revealed that the Office for Budget Responsibility now forecasts GDP will grow 1.5% in 2017, down from a forecasts of 2.0% earlier in the year, with growth expected to fall to 1.4% in 2018, which was also down from the earlier 1.6% forecast.

The OBR said growth was slowing as "public spending cuts and Brexit-related uncertainty weigh on the economy", with the main reason for lowering its GDP forecast since March being a reassessment of the post-crisis weakness in productivity.

UK GDP was forecast to slow even further to a low of 1.3% in 2019 and 2020, down from the OBR's 1.7% and 1.9% estimates published in March. GDP is then forecast to rise 1.5% in 2021 and 1.6% in 2022.

It was the first time in modern history that the official UK GDP growth forecasts were below 2% every single year over the forecast horizon.

But after a lower public deficit in recent months amid continued government austerity policies, OBR cut its debt forecasts and now expects debt to peak this year and then fall as a share of GDP, which Hammond said was "a turning point" for public debt.

Borrowing is forecast to be £49.9bn this year, down £8.4bn from the OBR's forecast in March, with borrowing then expected to fall in every year.

However due to lower GDP growth the forecast for next year was only trimmed slightly £39.5bn and increased to £29.6bn for 2019.

As a percentage of GDP, debt will peak at 86.5% of GDP this year, then fall to 86.4% next year and by 2022/23 is seen dropping to 79.1%.

“Brexit remains the key area of uncertainty for both GDP growth and the budget deficit, with the key unknown being whether a comprehensive deal can be achieved in both the goods and service sectors," said Shilen Shah, a bond strategist at Investec, as the Chancellor set aside a further £3bn to allow for Brexit.

"The key risk for the economy however remains whether a service sector agreement can be reached, given that it makes up more than 80% of the economy and its one area of trade where the UK has a surplus with the EU – in contrast to the manufacturing sector.”

The pound had dropped 0.1% to 1.3223 by 1300 GMT on Wednesday, midway through the Chancellor's speech, but not long after was up 0.2% to 1.3265.

More news

15:54 FTSE 100 movers: Sky jumps but retailers retreat on H&M sales

London’s FTSE 100 was up 0.3% to 7,469.23 in quiet afternoon trade on Friday.

15:49 Gfinity partners with Microsoft for next Halo World Championship

International esports entertainment group Gfinity has been named as a preferred event partner to Microsoft for the forthcoming ‘Halo World Championship 2018’ for the next season, it announced on Friday.

15:46 Hutchison Chi-Med begins fruquintinib trial in US

Hutchison China MediTech, known as Chi-Med, has initiated the United States Phase I bridging clinical trial of fruquintinib, it announced on Friday.

14:50 Ceres Power upbeat ahead of half-year point

Solid oxide fuel cell technology developer Ceres Power Holdings updated the market on its trading ahead of the end of the six month period to 31 December on Friday.

14:46 Conviviality offers failed P&H £25m for 109 stores

Independent alcohol wholesaler and distributor of alcohol and impulse products Conviviality announced on Friday that its wholly-owned subsidiary Bargain Booze has offered to acquire the business and assets of 109 convenience stores, and the rights as franchisor of a further 18 franchisee-operated stores trading under the fascia 'Central Convenience'.

14:43 Nektan's Respin signs deal with Seven Feathers Casino

Respin, a wholly-owned subsidiary of Nektan, has reached an agreement with Seven Feathers Casino Resort in Oregon.

14:02 Luxembourg appeals EU ruling for Amazon to collect €250m in unpaid taxes

Luxembourg is mounting a challenge to an EU ruling which ordered it to collect €250m in unpaid taxes from US tech giant Amazon.

14:00 Empire State index dips in December, as expected

A widely-followed gauge of factory sector conditions in the jurisdiction of the Federal Reserve Bank of New York dipped in December, just as expected by economists.

13:29 AstraZeneca's drug pipeline call reinforces Barclays 'top pick' in sector

After AstraZeneca's chief medical officer indicated 2018 will see no let-up in the flow of news about the drugs pipeline, Barclays said the shares offer significant potential upside.

13:29 Tullow Oil in line for potential January catalyst, says Barclays

Tullow Oil's January trading statement is likely to be a positive catalyst for the shares, said Barclays, reiterating its 'overweight' rating on Friday.