Chancellor to say UK economy will grow by just 1.25%
BRITAIN’S economy could grow by just 1.25 per cent in 2017, the Chancellor is set to say in Wednesday’s Autumn Statement, sharply down on previous predictions.
Philip Hammond is likely to present sharply reduced economic forecasts from the independent Treasury watchdog, the Office for Budget Responsibility.
The OBR estimated in March that the economy would grow 2.2 per cent in 2017 but experts at the EY Item club, which uses a Treasury forecasting model, said this weekend that the figure would be slashed to between 1.25 and 1.5 per cent.
‘The market consensus is now at 1.1 per cent, though given surprisingly strong Gross Domestic Product growth in the third quarter of 2016, we think that the OBR may publish an above-consensus forecast,’ the club said.
The OBR has never made any estimates of either the short or longterm economic impacts of Brexit. The Treasury’s grim warnings before the vote were based on predictions made by in-house experts. Nonetheless the Item club believes that the OBR may cut all its forecasts of Gross Domestic Product growth by a quarter of a percentage point a year to reflect a less optimistic outlook.
Experts believe growth will slow next year as inflation hits consumer spending. Some forecasters put the resulting hole in the public finances as high as £100billion over a fiveyear period.
Despite hoping to downgrade the Autumn Statement as a set-piece parliamentary event, the Chancellor is thought to have come under pressure from the Prime Minister to outline measures to help those dubbed JAMS – those who are ‘just about managing’.
A freeze in fuel duty, cuts to air passenger duty and more childcare subsidies have all been mooted, while some suggest that the Chancellor could move to limit rises in rail fares.
Sources said that the final details of Wednesday’s statement were still being finalised this weekend.
The Chancellor is expected to outline more investment in infrastructure, perhaps raising money for projects through designated bonds.
Martin Beck, senior economic adviser to the Item club, said: ‘Given how well the economy has performed there isn’t a pressing need to do anything immediately to boost growth.’
He expects the Chancellor to boost public sector investment from 1.5 per cent to 2 per cent of GDP – the most common measure of a country’s economic activity.
There could also be measures to help consumers facing a squeeze from higher prices – perhaps by postponing freezes to benefits.
The Institute of Directors has suggested the UK may need to reduce corporation tax to remain competitive with the US, where Presidentelect Donald Trump is pledging to cut the rate to just 15 per cent.
In September, the Chancellor said he was scrapping his predecessor George Osborne’s plan to reduce the rate to 15 per cent, with the rate to come down to just 17 per cent by 2020. It currently stands at 20 per cent of a company’s profits.