UK growth forecast slashed as Hammond touts infrastructure plan

UK growth forecast slashed as Hammond touts infrastructure plan

Chancellor Philip Hammond has announced significantly reduced UK GDP growth forecasts for the next five years as inflation and weaker investment take hold amid uncertainty over the UK's trading relationship with Europe.

UK growth, as estimated by the Office of Budget Responsibility (OBR) is now set to be 2.4 percentage points lower over the next five years than had been estimated in March's Budget.

Forecasts announced in the Autumn Statement today (November 23), 2016's growth estimate has risen 0.1 percentage points to 2.1 per cent compared with March figures, but 2017's is 0.8 percentage points lower at 1.4 per cent.

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Growth in 2018 will be 1.7 per cent, some 0.4 percentage points lower than March's estimate, but forecasts then rise and are back in line with previous predictions by 2019, when growth is expected to be 2.1 per cent.

Mr Hammond noted the estimates were lower but said 2017's forecast remains equivalent to the International Monetary Fund (IMF) prediction of German growth, and above the rates forecast for France and Italy.

In the chancellor's first policy statement to the House of Commons since the new government came to power in July, Mr Hammond also confirmed a previously announced reversal of George Osborne's commitment to operating a fiscal surplus by 2020.

He said while the government remained committed to seeing "finances balance", it would leave enough flexibility to support the economy in the near-term.

This is to be enacted through a raft of infrastructure and housebuilding measures announced today, including a national productivity investment fund of £23bn to be spent over the next five years.

Government borrowing is set to increase in the near-term as a result, with forecasts relative to March's estimates rising sharply for every fiscal year until 2021/22. 

Mr Hammond's predecessor Mr Osborne had committed to returning to a budget surplus by 2019/20, though this was scrapped in the aftermath of Brexit. March's prediction of a £10bn surplus for the 2019/20 tax year has been revised down today to a £30bn deficit.

As a result, the UK's debt to GDP ratio is to rise to 90.2 per cent by 2017/18 - the highest level for four decades.