The UK’s growth forecast was bumped up to 2% for this year, up from a November prediction of 1.4%, ahead of negotiations to exit the European Union.
Presenting a brighter outlook for the economy in the short-term, Chancellor Philip Hammond unveiled his first budget forecast and the first since the EU referendum last summer.
Hammond said in his Budget speech: “As we start our negotiations to exit the European Union, this Budget takes forward our plan to prepare Britain for a brighter future. It provides a strong and stable platform for those negotiations.”
However Hammond had to cut his official economic growth forecasts while Brexit talks take place, with lower than expected growth in 2018-19 (1.6%), in 2019-20 (1.7%) and in 2020-21 (1.9%).
Along with the growth forecast the Office for Budget Responsibility (OBR), set up to provide independent forecasts for the government, substantially revised down its short-term forecast of public sector net borrowing, falling from 3.8% to 2.6% this year, meeting the EU’s Growth and Stability Pact targets.
“But I won’t hold my breath for a congratulatory letter from Jean-Claude Junker,” Hammond added.
The Chancellor also said updated OBR figures confirmed the labour market was strong and real wages were predicted to grow.
While the Bank of England recently warned wages will be squeezed by the sharp increase in inflation, the figures unveiled today confirmed inflation will stay above the bank’s 2% target for at least the next three years.
This year inflation is forecast to hit 2.4%, it will then fall to 2.3% in 2018 and finally down to 2% in 2019.
On the national debt situation, the Chancellor said it is expected to peak at 88.9% of economic output next year, which is also 1.4% lower than the OBR’s forecast in the Autumn, but gave no room for “more unfunded spending.”
“We will not saddle our children with ever-increasing debts,” he said.
Borrowing will also plunge £16.7bn lower than originally forecast at £51.7bn, falling to £48.3bn in 2017-18, then £40.8bn, £21.4bn and £20.6bn in 2020-21.
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About Robert Lovell
Business and finance journalist