Public borrowing to undershoot OBR forecasts by around £45 billion in total to 2021/22, but no big giveaway Budget expected

Published at 09:28 AM on 02 March 2017

  • PwC projects public borrowing will fall to around £58 billion in 2016/17, around £10 billion less than the OBR forecast in November

  • Some of this shortfall will prove permanent, with public borrowing projected to fall to only around £10 billion by 2021/22, around £7 billion less than the OBR forecast in November

  • Over the whole period from 2016/17 to 2021/22, PwC projects cumulative public borrowing to be around £45 billion (c.2% of GDP) less than the OBR forecast in November

  • The Chancellor may use some of this anticipated £45bn windfall to support extra spending on political priorities like the NHS and social care, but he will probably ‘bank’ most of the money given the uncertain economic outlook over the Brexit negotiation period

The latest PwC projections for economic growth and public borrowing are summarised in the table below in comparison to the OBR forecasts from both March 2016 (which assumed a vote to Remain) and November 2016:

Real GDP growth (%)

2016

2017

2018

2019

2020

2021

OBR (March 2016)

2.0

2.2

2.1

2.1

2.1

n/a

OBR (November 2016)

2.1

1.4

1.7

2.1

2.1

2.0

PwC (February 2017)

1.8

1.6

1.4

1.9

2.0

2.0

Public sector net borrowing ex banks (£bn)

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

OBR (March 2016)

56

39

21

-10

-11

n/a

OBR (November 2016)

68

59

47

22

21

17

PwC (February 2017)

58

53

38

15

15

10

- Difference*

-10

-6

-9

-7

-6

-7

- Cumulative difference*

         

-45

*Comparing latest PwC projections for public borrowing (assuming unchanged tax and spending policies) and the OBR’s November 2016 forecast

John Hawksworth, chief economist at PwC, commented:

“Our views on economic growth are still broadly in line with those of the OBR in November 2016. We both expect UK growth to moderate to an average of around 1.5% in 2017-18 followed by a return to a post-Brexit trend growth rate of around 2% in 2020 and beyond.

“On public borrowing, with the benefit of more recent data, we can see that the budget deficit this year looks likely to come in around £10 billion below the OBR’s  November 2016 forecast, although still slightly higher than they predicted back in March 2016 on the assumption of a vote to Remain.

“Our latest budget deficit projections are consistent with the fact that the Brexit vote does not yet seem to have had a significant adverse impact on UK growth, although we do expect this to start to come through in future years as higher inflation squeezes consumer spending power and Brexit-related uncertainty dampens business investment growth. Despite these drags on growth, we expect the budget deficit to fall to a sustainable level of only around £10 billion (c.0.4% of GDP) by 2021/22, well within the Chancellor’s new medium term fiscal target of a 2% of GDP structural deficit .

“This may give the Chancellor some wiggle room to spend a few billion pounds more on political priorities like the NHS and social care, but we don’t expect a big giveaway Budget. Instead, we expect the Chancellor to use most of the potential £45 billion windfall from lower cumulative public borrowing over the period to 2021/22 to reduce the public debt to GDP ratio faster than previously projected.

“Given the economic and political uncertainties surrounding the Brexit negotiations, upcoming European elections and the policies of the new US administration, this seems like a prudent path to take.”

Ends.

Notes for editors.

John Hawksworth is available for interview, please contact Tilly Parke: tilly.parke@pwc.com / 020 7804 8761.

Further analysis will be released in the next edition of PwC’s UK Economic Outlook, which is currently scheduled to be published on 21st March 2017.


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