Economy gears up for Brexit as Treasury chief looks to balance books

● Latest predictions from the Office for Budget Responsibility bring mixed news on the outlook for growth and inflation

public finances are back in the black “as early as possible” in the next Parliament.

Outlining the forecasts for debt yesterday, the Chancellor said it would rise to 86.6 per cent of GDP this year, peaking at 88.8 per cent next year – 1.4 percentage points lower than forecast in November – before falling to 88.5 per cent, 86.9 per cent and 83 per cent in subsequent years, finally reaching 79.8 per cent in 2021-22.

Focusing on inflation, the OBR has upgraded the forecast for this year from 2.3 per cent to 2.4 per cent, then downgrades forecasts in following years to 2.3 per cent in 2018 and 2 per cent in 2019, with real wages rising in every year of the forecast.

Household spending is expected to be squeezed in the coming months as Brexit-induced inflation bumps up the cost of living.

Hammond said: “While the economic forecasts are broadly unchanged since the autumn, the OBR has substantially revised down its shortterm forecast of public sector net borrowing.

“The OBR attributes this change to a number of one-off factors that they do not expect to lead to a structural improvement over the forecast period.”

Howard Archer, chief UK and European economist at forecasting consultancy IHS Markit, said a “cautious, steady overall approach” was the defining feature of the Budget.

“All the economic forecasts contained in the Budget have to be considered in the context that there is massive uncertainty over how the UK’S relationship with the EU will develop over the next few years and what arrangements are eventually reached regarding trade, access to the single market and immigration,” noted Archer.

“The growth forecasts for 2019 and beyond are particularly uncertain given that the UK would be due to leave the EU in April 2019 (assuming Article 50 is triggered by the end of March) and nobody knows what arrangements will be in place by then.”

Ben Brettell, senior economist at Hargreaves Lansdown, said: “‘Spreadsheet Phil’ lived up to his dull-sounding nickname with a speech of cautious optimism. Unsurprisingly his opening remarks stressed the positives, but emphasised there was still work to be done.

“Growth forecasts were upgraded for this year from 1.4 per cent to 2 per cent, but reduced to 1.6 per cent next year, with the net result that GDP in 2021 is expected to be broadly the same as forecast in the Autumn Statement.

“Real wages rise in every year of the OBR forecast, which is good news for households who expected to have their budgets squeezed by rising inflation, and good news for sectors of the economy reliant on consumer spending.”