A brighter picture painted of UK economy

● Borrowing to fall while growth expected to rise ahead of Budget

0 Chancellor Philip Hammond receiving good news ahead of next month’s Budget Chancellor Philip Hammond is in line for a Budget boost as Britain’s fiscal watchdog unveils a brighter outlook on growth and the public finances, according to a report.

The Office for Budget Responsibility (OBR) will trim forecasts for net borrowing by £3 billion to £65bn for 2016-17, while revising up predictions for the UK economy to 1.7 per cent from 1.4 per cent for this year, EY Item Club has said.

The government’s fiscal referee will take the unexpected steps after seeing a bigger haul from tax receipts and a stronger performance from UK gross domestic product (GDP) in the fourth quarter of 2016.

Martin Beck, senior economic adviser to EY Item Club, said Mr Hammond would be under little pressure for the 8 March Budget to “use fiscal levers to support activity or fill any fiscal ‘black hole’”.

“The OBR will paint a marginally better picture of the UK economy and public finances in the short term, but fiscal policy faces major challenges on both the revenue and spending sides in the longer term. One of the most interesting aspects will be how the OBR deals with the latest Brexit developments.

“We suspect there will be few changes given that lingering questions around the UK’S post-brexit trade relations with the EU and migration policy are likely to go unanswered for some time yet.”

The OBR had pencilled in a sharp rise in borrowing during the Autumn Statement, pushing up its predictions to a more gloomy £68.2bn for 2016-17 from £55.5bn.

It also made sweeping changes to its forecasts for UK GDP in anticipation that lower investmentandweakconsumer demand triggered by the Brexit-hit pound would apply the brakes to the economy.

The OBR slashed its outlook for 2017 from 2.2 per cent to 1.4 per cent in November, while also revising its GDP forecasts from 2.1 per cent to 1.7 per cent in 2018. It maintained its outlook of 2.1 per cent growth in 2019 and 2020, before slipping to 2 per cent in 2021.

However, the UK economy has confounded expectations of Brexit-induced slowdown, with GDP growing by 0.6 per cent for the second, third and fourth quarters of 2016.