NEW FISCAL FORECAST
Compared to the March forecast, the Office for Budget Responsibility (OBR) is projecting an additional £122.1 billion of borrowing over the five year forecast period. Nearly half of the decline in fiscal outlook is accounted for by factors relating to Britain’s exit from the European Union. The other half is a combination of classification changes, non-EU related circumstances and the Government’s additional borrowing from decisions made at the Autumn Statement.
The Government is no longer expecting to hit a budget surplus by 2019-20. Instead, Philip Hammond has introduced a new fiscal rule that requires the UK to run a structural deficit below 2% of GDP by the end of this parliament.
Debt to GDP ratios are now expected to peak at 90%, according to the OBR forecast. This could be cause for concern. A study conducted by Reinhart and Rogoff suggests that median economic growth rates fall by 1% above the threshold of a 90% debt to GDP ratio. Although the findings of this study have been disputed, there is broader evidence of a negative association between debt and economic growth