LONDON: The UK economy will confound forecasts for a Brexit-related slowdown through 2017, but will then quickly run out of steam as rising prices hit consumer spending, the Office for Budget Responsibility has predicted. The government’s independent forecaster said that since its November outlook, the economy had performed better than expected and it raised its forecast for economic growth this year to 2% from 1.4%. But it predicts growth will be slower than previously thought in 2018, at just 1.6%.
The new forecasts still paint a gloomier picture for growth than those published this time last year, when the UK was yet to vote for Brexit. Setting out the new forecasts, the OBR’s chairman, Robert Chote, said the pattern of growth it envisaged had changed to one where the economy expands more quickly this year then slows, rather than the other way round as forecast in November. But the result in five years’ time was roughly the same in terms of where the economy would end up.
The more significant changes were on the public finance forecasts, with the OBR now expecting the government to borrow significantly less this financial year. Setting out the new growth outlook, Chote said: “The economy ended 2016 with greater momentum than we expected, thanks to the great British consumer, but the outlook over the medium term is little changed.” He warned that support to the economy from household spending was set to wane as people contend with higher prices. He also flagged a recent trend for people to dip into their savings to spend.
Chote noted that spending grew but incomes were flat in the final months of 2016, a pattern that implied a “sharp fall in household saving”. The OBR thinks that in the fourth quarter of last year the saving ratio – which estimates the amount of money households have available to save as a percentage of their total disposable income – turned negative for the first time since mid-2008.
