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Doubts raised over Chancellor's ability to ease austerity

The revamped Spring Statement saw Chancellor Phillip Hammond unveil forecasts of higher growth and lower borrowing, but think-tanks cast doubt on his suggestion that austerity could be eased in the Budget this autumn.

Hammond said that the Office for Budget Responsibility (OBR) had increased its growth forecast for 2018 to 1.5%, from 1.4% previously, with unchanged forecasts of 1.3% for 2019 and 2020.

The UK, the Chancellor declared, was at a turning point in its recovery from the financial crisis and he could see “light at the end of the tunnel”.

He also suggested he could use some of the £4bn a year from the improvement in the borrowing forecasts, to top up spending plans in the autumn.

But the Institute for Fiscal Studies (IFS) and the Resolution Foundation warned that the government would have little scope to ease austerity in the coming months unless the economy improves substantially.

The IFS estimates the government needs to raise tax revenues by about £40bn a year if it is to maintain public spending and reduce the deficit.

Paul Johnson, director of the IFS, said: “The reality of the economic and fiscal challenges facing us ought to be at the very top of the news agenda. Not the spin and bluster of politicians on all sides pretending there are easy solutions, that the promised land is just around the corner, or that they can reinvent the laws of economics.”

“What’s more” he added, “growth projections remain very subdued. At no point in the next five years does the OBR believe that annual growth will exceed 1.5%. To put an even less positive gloss on the numbers, growth in GDP per capita is forecast to be less than 1% in each of the next five years, half the pre-crisis trend.”

Meanwhile, the Organisation for Economic Cooperation and Development (OECD) predicted that the UK will have the weakest growth of any G20 country in 2018, with 2019 seeing UK growth dropping to 1.1%.

The OECD forecasts global growth of 3.9% in 2018, up from 3.7% last year, citing the US tax cuts and fiscal stimulus in Germany as the main drivers behind the strong global outlook.

Property prices in London were 2.6% lower in February than a year ago, according to a survey by Rightmove and Acadata, with boroughs such as Wandsworth and Southwark seeing double-digit declines.

The survey found the north-west of England has the fastest-rising property prices, with the average price in Blackburn up 16.4% over the last year. 

In the US, retail sales were down 0.1% in February, the third consecutive month of declines. The falls raise questions about momentum in the US economy, where consumer spending accounts for 70% of GDP.  


Click here to read this week's Market Roundup and Company Focus on Prudential 

 
Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

 

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