Economic and fiscal outlook

Transcription

1 Economic and fiscal outlook 16 March 2016 Robert Chote Chairman

2 Coverage and process Five year forecasts, plus assessment of targets Independent BRC responsible for conclusions Helped by OBR staff and other officials Final pre-scorecard forecast on 4 March Met with the Chancellor on 7 March

3 Key points Recent economic data weaker than expected Revised down trend productivity and output growth Pre-measures deficit 11bn a year higher on average Weaker tax revenues; more welfare spending Partly offset by lower debt interest bills But Budget measures keep 10bn surplus in Partly due to timing effects Debt rises as % GDP this year because GDP lower Welfare cap still breached: disability spending Brexit: we assume UK remains in the EU

4 Real and nominal GDP growth Percentage change on a year earlier November NGDP November Real GDP

5 Real and nominal GDP growth Percentage change on a year earlier March Real GDP March NGDP

6 Why more gloomy? Data published since November Slowdown in real and nominal GDP growth Widening trade deficit Sharp fall in productivity Average earnings growth weaker Financial markets weaker No interest rate increase expected until 2019 Other forecasters also revising growth down

7 Productivity disappoints again Hourly productivity Percentage change on a quarter earlier November 2015 March Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3

8 Productivity disappoints again Hourly productivity Percentage change on a quarter earlier November 2015 March Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3

9 Why more gloomy? Data published since November Slowdown in real and nominal GDP growth Widening trade deficit Sharp fall in productivity Average earnings growth weaker Financial markets weaker No interest rate increase expected until 2019 Other forecasters also revising growth down

10 Interest rate rise recedes June 2010 November 2015 March 2016 Per cent

11 Selected GDP forecast revisions Percentage change between forecast levels OBR revision Bank of England revision OECD revision

12 Lower trend productivity growth Percentage change on a year earlier November 2015 March average average average

13 Lower trend productivity growth Percentage change on a year earlier November 2015 March average average average

14 Lower trend productivity growth Percentage change on a year earlier November 2015 March average average average

15 Lower potential output growth 2007 actual output = Treasury (March 2008) OBR (November 2015)

16 Lower potential output growth 2007 actual output = Treasury (March 2008) OBR (November 2015) OBR (March 2016)

17 Lower potential output growth 2007 actual output = Range of external forecasts Treasury (March 2008) OBR (November 2015) OBR (March 2016) IMF (October 2015) OECD (November 2015)

18 2010= Trend productivity and output UK UK US US

19 2010= Trend productivity and output UK UK US US

20 Trend productivity and output UK UK US US =

21 Impact on fiscal determinants Cumulative percentage growth, 2015/16 to 2020/21 November March Difference Trend output Real GDP Nominal GDP Wages and salaries Profits Nominal consumer spending Nominal business investment

22 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

23 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

24 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

25 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

26 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

27 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

28 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

29 The pre-measures forecast (Mar) Nominal GDP 25 Equity prices billion 15 5 Welfare cap spending LA and PC spending Interest rates Other forecast changes Debt interest spending Total

30 The pre-measures forecast (Nov) 25 Equity prices 15 Welfare cap spending billion 5 Interest rates Debt interest spending -5 Other forecast changes Total

31 Forecast revisions in context Average revision to PSNB forecast (per cent of GDP) Nov 2010 March 2011 Nov 2011 March 2012 Absolute average (0.5 per cent of GDP) Dec 2012 March 2013 Dec 2013 March 2014 Dec 2014 March 2015 July 2015 Nov March

32 Impact of the policy package PSNB levels ( billion) November forecast March forecast pre-policy decisions March forecast post-policy decisions

33 Impact of the policy package PSNB levels ( billion) November forecast March forecast pre-policy decisions March forecast post-policy decisions

34 Impact of the policy package PSNB levels ( billion) November forecast March forecast pre-policy decisions March forecast post-policy decisions

35 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

36 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

37 Change in real RDEL from billion ( prices) November March

38 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

39 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

40 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

41 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

42 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

43 The policy package Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts billion Lower borrowing/bigger surplus Other spending measures Delay to CT quarterly payments measure Other net tax changes Indirect effects Total

44 The policy package (July) billion 0 Higher borrowing/smaller surplus Change in RDEL Change in CDEL Net welfare cuts Gross tax increases Gross tax cuts Other spending changes Indirect effects -75 Lower borrowing/bigger surplus Total

45 The policy package (July,Nov) 75 Higher borrowing/smaller surplus Change in RDEL billion Lower borrowing/bigger surplus Change in CDEL Net welfare cuts Gross tax increases Gross tax cuts Other spending changes Indirect effects Total

46 The policy package (July,Nov,Mar) 75 Higher borrowing/smaller surplus Change in RDEL billion Lower borrowing/bigger surplus Change in CDEL Net welfare cuts Gross tax increases Gross tax cuts Other spending changes Indirect effects Total

47 The pace of fiscal tightening Per cent of GDP March 2015 July 2015 November 2015 March

48 The pace of fiscal tightening Per cent of GDP March 2015 July 2015 November 2015 March

49 The pace of fiscal tightening Per cent of GDP March 2015 July 2015 November 2015 March

50 The pace of fiscal tightening Per cent of GDP March 2015 July 2015 November 2015 March

51 : not as bad as it looks? We expect the deficit to fall more sharply over the rest of the year than it has to date Stronger income tax and NICs Higher stamp duty on property and shares Higher VAT Lower housing association borrowing Lower EU contributions

52 Impact on the economy Fiscal loosening then tightening GDP growth up 0.1ppt in 17-18, down 0.1ppt in & Measures affecting cost of capital A dropped measure boosts business investment 0.5% by NICs on termination payments 0.1% reduction in wages and salaries by Lifetime ISA for under 40s 0.3% increase on house prices by Soft drinks industry levy Increases inflation by ¼ ppt in

53 The fiscal rules Fiscal mandate Requires a surplus on public sector net borrowing by the end of and each subsequent year Supplementary target For public sector net debt to fall as a percentage of GDP in each year to (after which it would continue if mandate met) These targets apply unless negative shock

54 Public sector net borrowing Fiscal mandate year Per cent of GDP

55 Net migration scenarios Thousands Long term average ( ) 5 year average ( ) Principal projection High variant Low variant

56 Public sector net debt Per cent of GDP November

57 Major asset sales (November) billion RBS (share sales) RBS (DAS) Lloyds UKAR Student loans Royal Mail Others

58 Major asset sales (March) billion RBS (share sales) RBS (DAS) Lloyds UKAR Student loans Royal Mail Others

59 Public sector net debt Per cent of GDP November 2015 March 2016, only changes in cash PSND March

60 Public sector net debt Per cent of GDP November 2015 March 2016, only changes in cash PSND March

61 The welfare cap billion July welfare cap November forecast Pre-measures changes Aids and appliances Other policy measures March forecast Difference from cap Difference from cap plus forecast margin

62 The welfare cap billion July welfare cap November forecast Pre-measures changes Aids and appliances Other policy measures March forecast Difference from cap Difference from cap plus forecast margin

63 The welfare cap billion July welfare cap November forecast Pre-measures changes Aids and appliances Other policy measures March forecast Difference from cap Difference from cap plus forecast margin

64 The welfare cap billion July welfare cap November forecast Pre-measures changes Aids and appliances Other policy measures March forecast Difference from cap Difference from cap plus forecast margin

65 Disability benefits billion Successive OBR forecasts November 2015 March 2016 pre-measures March

66 The welfare cap billion July welfare cap November forecast Pre-measures changes Aids and appliances Other policy measures March forecast Difference from cap Difference from cap plus forecast margin

67 Conclusion An eventful Budget Revised pre-measures forecast and 77 measures Underlying budget deficit forecast revised up But new tax cuts and spending commitments 10bn surplus maintained in thanks to Other tax increases Unspecified cuts in future spending Shuffling spending and receipts