Chancellor Philip Hammond has been forced to admit that his 2017 forecast for economic growth had been slashed to 1.5% from the 2% he promised in his March Budget, and forecasts for 2018-2021 have been revised down to 1.4%, 1.3%, 1.3% and 1.5% respectively.
CPI inflation will peak at the end of this year, averaging 3% in the final quarter of the year. It is then expected to ease over 2018, averaging 2.4%, as the effect of sterling’s depreciation wanes. Inflation then remains steady in 1.9% to 2% range until the end of the forecast period in 2022-23.
Last week’s Budget documents also give forecasts for RPI inflation and this is expected to average 3.6% in 2017 and then forecast to fall back to 3.3% next year, followed by a further fall to 2.8% the year after. In the final three years of the forecast period it is expected to rise again to 2.9%, 2.9% and 3.0%.
Average earnings growth is expected to be 2.3% this year and forecast to stay at the figure for the next two years. Workers’ livings standards will, therefore, continue to be hit if RPI inflation is used for comparison with earnings growth. However, if CPI is used there will be some improvement in living standards.
A TUC analysis of official figures published for the Budget shows that wages are now set to be worth £800 less per year in 2021 than had been expected at the Budget in March.
TUC general secretary Frances O’Grady said: “The news for workers gets worse and worse. This Budget won’t give Britain the pay rise it so badly needs.”
On the public finances, Hammond said that annual government borrowing will be £49.9 billion this year, £8.4 billion lower than forecast in his March Budget.
Borrowing is forecast to fall in real terms in the subsequent five years from £39.5 billion in 2018-19 to £25.6 billion in 2022-23. However, projected borrowing has been revised up for 2019-2020, 2020-2021 and 2021-22, compared to March, due to the weaker economic outlook and expected lower tax yields. Public sector net borrowing is forecast to fall from 3.8% of GDP last year to 2.4% this year, then 1.9%, 1.6%, 1.5% and 1.3% in subsequent years, reaching 1.1% in 2022-23.