Fiscal watchdog slashes UK growth forecast to lowest since financial crisis
Britain’s fiscal watchdog has slashed its expectations for growth this year to the lowest level since the financial crisis, as the Chancellor warned of a Brexit “cloud of uncertainty” hanging over the UK’s economy.
In documents released alongside Philip Hammond’s Spring Statement, the Office for Budget Responsibility (OBR) said growth in the UK and global economies had slowed since October’s Budget, leading to a downgrade in its short-term forecasts.
Gross domestic product (GDP) is expected to grow by 1.2% in 2019, compared with a previous prediction of 1.6% published during the autumn Budget.
It echoed last month’s sentiments from the Bank of England, which warned Brexit uncertainty is set to see growth slump to its lowest level for 10 years in 2019.
The Bank has also slashed this year’s growth forecast to 1.2% – the lowest since 2009 when the economy contracted by 4.2% at the height of the recession following the financial crisis.
The OBR said a recent run of disappointing economic data in the UK and other major economies had weighed on expectations.
However cumulative growth over the next five years is expected to be slightly higher than it was at the Budget forecast.
The OBR’s estimate of 1.4% growth for 2020 remains unchanged, but 2021 and 2022 are now expected to deliver slightly higher growth, with 1.6% forecast for both years. The estimate for 2023 remains unchanged at 1.6%.
Economists at the OBR said this was due to buoyancy in tax receipts and lower debt interest spending.
Borrowing is expected to be lower this year, coming in at £22.8 billion, down £2.7 billion since October.
The OBR warned that a disorderly no-deal Brexit would pose a risk to the predicted growth rates, as the numbers are based on an assumed scenario in which the UK leaves the EU with a deal on March 29, and enters a transition period.
The Chancellor told MPs the OBR also expects 600,000 additional jobs to be generated by 2023, reaching a total of 33.2 million people in employment.
Wage growth expectations have been revised upwards to at least 3% in each year until 2023, although this year’s 3.1% estimate will mark a slowdown on last year’s 4.1%.