Richard Ramsey, Chief Economist, NI, Ulster Bank:
Growth
“Philip Hammond kept expectations low ahead of his new Budget-lite Spring Statement. And today he duly delivered what many would deem a non-event. With no spending or taxation changes, the purpose was to provide an update of the economic and public finance forecasts. These were marginally better than the last set of projections at the November 2017 Budget. Context, however, is everything. You may recall November’s forecast downgrades were viewed as something of “a bloodbath” at the time – a low.
Last year’s economic growth has been revised upwards from 1.5% to 1.7%. According to the Office for Budget Responsibility (OBR) this looks set to represent the fastest rate of growth for at least the next 6 years. The UK economy is set to slow to 1.5% in 2018 (up from 1.4% in November) to 1.3% in 2019 and 2020. The UK economy is then set to ‘accelerate’ to 1.4% in 2021 and 1.5% in 2022. Back in March 2016, the OBR projected growth in excess of 2% each year from 2017-2020. Historically the only times the UK economy expanded at rates below 1.3/1.4% was when the economy was either in recession or transitioning into / out of one.
It is worth noting that the Northern Ireland economy has consistently under-performed against the UK since the financial crisis. We can expect this trend to continue with the Northern Ireland economy stuck in a low growth gear of 1.0 – 1.5%. Both the UK and NI’s rates of economic growth are sluggish by a historical perspective. It is also worth noting that the OECD expects the UK to be the slowest growing economy in 2018 amongst the G-20 group of countries. The UK’s poor economic growth rates are occurring at a time when the global economic recovery is very strong.
Public Finances
The Chancellor said that the borrowing requirement has fallen, but perhaps not by as much as people expected. The UK still requires £45bn to balance the books in the current financial year (incidentally that is still more borrowing that was projected 2 years ago). As the Institute for Fiscal Studies recently noted we are not nearing the end of austerity. The state of the public finances remain challenging particularly with the UK stuck in a slow growth lane. Given the challenges the Chancellor faces, tax increases are going to be unavoidable. Policies such as the dementia tax have been put on the back burner, but these things alongside funding the NHS need to be looked at. I would suggest that the days of not touching the likes of income tax, VAT and national insurance are numbered: we have reached the point where it is very difficult to deliver the public services that the public wants without raising taxes.
