Hammond prepares Brexit honey pot despite punchy forecasts
8 March 2017
Commenting on today’s Budget, Ian Kernohan, Economist at Royal London Asset Management, said:
“The UK economy has been much more resilient than expected in the wake of the Brexit referendum. The Office for Budget Responsibility has recognised this by revising up their GDP growth forecasts for this year, in line with the new Bank of England forecast, to a punchy 2%.
“GDP growth is expected to slow to 1.6% in 2018 and looking beyond that, OBR growth forecasts are a tad lower than their November forecast, although the level of GDP in 2021 is projected to be the same as in the Autumn Statement.
“There is little sense here that the OBR believes that Brexit will be a significant headwind to growth, despite the Prime Minister’s stated aim of leaving both the Single Market and Customs Union, however its GDP forecasts over the next five years look modest enough to offer some room for upside surprise.
“Tax receipts have been higher and spending lower than the OBR expected in November, so the budget deficit has been revised lower, to £51bn in the current fiscal year. At 2.6% of GDP, this is a much stronger position than the 11% deficit which the coalition government inherited in 2010.
“The OBR has deemed any improvement in the public finances as down to one off factors, so there was little room for any major change in the fiscal stance at this point.
“That said, the Chancellor still has some room for extra borrowing, thanks to the new fiscal rules introduced last year. He has taken the decision to save this modest honey pot, in case the Brexit process causes a much larger than expected hit to economic growth.”
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About Royal London Asset Management (RLAM):
Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.
RLAM manages over £101 billion of assets and employs 76 investment professionals. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.