Chancellor George Osborne has missed his GDP and debt forecasts for this financial year, sending sterling down to a fresh monthly low against the dollar and the euro.
Despite his best efforts to talk up today’s Budget, Britain’s economy looks weaker than at November’s autumn statement.
Growth has been cut every year between now and 2020 while the new forecast of 2 per cent growth this year could be optimistic if the global economy worsens.
George Osborne updated the country on the UK’s economic prospects today in his Budget
In his budget, Osborne revealed that the OBR forecast economic growth for this year was considerably lower than the 2.4 per cent growth forecast in November,
Growth is forecast to be just 2.2 per cent in 2017 from 2.5 per cent previously.
At the same time Osborne’s debt forecasts show borrowing is higher than hoped. As a proportion to GDP it will be 82.6 per cent next year, up from 82.5 per cent this year. By 2020/21, it will be 74.7 per cent, up from previous forecasts of 71.3 per cent.
As a result sterling initially dropped. It fell to $1.4060, down 0.6 per cent on the day, its lowest since March 3, while it also fell 0.34 per cent against the euro at €1.270. It was trading at $1.4082 before Osborne started to speak.
The pound recovered some ground, however, and at 15.30 London time was trading down 0.48 per cent at $1.4083 and down 0.1 per cent at €1.2735.
Naeem Aslam, analyst at Avatrade, said: ‘Osborne has really hammered market expectations with respect to the UK growth story.
‘Not that Carney has provided much abutment for the currency by saying along the lines of a possibility of rate hike, but today’s comments from Mr Osborne has taken further wind out of the currency.
‘The critical support level of 1.3902 is under focus against the dollar and if we break this support, then we are heading even further lower with a target of 1.3835.’
Tobias Davis, at Western Union, added: ‘Osborne admitted that he failed to meet the rule of seeing debt fall as proportion on GDP, however maintained his target on achieving a budget surplus of 10.4 billion in 2019/20.’
Failed: The new debt forecasts mean that the Chancellor has missed his target of starting to cut the national debt, as a percentage of output, this financial year
Some analysts said the forecasts were a reality check for the Chancellor, with some even questioning whether more austerity was the correct medicine for the UK’s ailing economy.
Nancy Curtin, chief investment officer of Close Brothers Asset Management, continued: ‘Ultimately, the Budget proved a missed opportunity to bring the UK’s economy back to the boil. In a world of slowing growth, more austerity is no longer the way to balance the books.
‘This needs to be achieved by growth – and given the scepticism over the efficacy of monetary policy changes, a change in fiscal policy is paramount.
‘Osborne would do well to abandon his deficit reduction time limit altogether, and focus on large-scale investment and tax-cuts to sustain a long-term recovery.’
Hit: Sterling fell to $1.4060, down 0.6 per cent on the day, its lowest since March 3. Source:Bloomberg
In a politically charged speech, just a few months before the referendum on whether Britain should remain in the European Union, the Chancellor also set out his stall for Britain remaining in the European Union.
Osborne made clear at the beginning of his statement that all OBR forecasts were predicated on UK remaining in.
He said: ‘A vote to leaver could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship in the EU, the OBR says.’
‘A vote to leave would affect business and consumer confidence, resulting in market volatility and a result in a period of disruption.’
Breakdown of the new economic growth and debt figures from the OBR
Here’s the new deficit figures:
2015-2016: £72.2billion, down from £73.5billion in the Autumn Statement
2016-2017: £55.5billion, up from £49.9billion
2017-2018: £38.8billion, up from £24.8billion
2018-2019: £21.4billion, up from £4.6billion
2019-2020: £10.4billion surplus, compared with a £10.1billion surplus
2020-2021: £11billion surplus, compared with a £14.7billion surplus
Osborne’s debt forecasts show he’ll miss his target to have debt falling as a share of GDP.
It will be 82.6 per cent next year, up from 82.5 per cent this year. By 2020/21, it will be 74.7 per cent, up from a previous forecast of 71.3 per cent.
Here’s the new economic growth figures:
2016: Revised from from 2.4 per cent to 2 per cent
2017: Revised down from 2.5 per cent to 2.2 per cent
2018:Revised down from 2.3 per cent to 2.1 per cent