A long overdue downgrade for productivity growth assumptions has had a knock-on effect on growth and borrowing forecasts.
Below are the early reactions of some of the City’s top economists.
All about the productivity
Ian Stewart, chief economist at Deloitte, said: “The big news is a whopping downgrade to prospects for long-term growth.
“The OBR’s view that weak productivity is here to stay, and is not just a lingering hangover from the financial crisis, means a longer haul to eliminate the deficit and slower wage growth.
“Slower growth has eroded Mr Hammond’s room for manoeuvre. But he’s played a canny hand, easing the squeeze on public spending, meeting his deficit target and still managing to leave some powder dry.”
John Hawksworth, chief economist at PwC, comments on the economic impact of the Budget: “At first sight, the Chancellor just about managed to keep his balance, although the details will need further scrutiny over the coming days.
“The chancellor was able to provide some carefully targeted giveaways to support housing, health, skills and infrastructure while still keeping the budget deficit on a downward path.
Easing the austerity pressure
Some of the fiscal hawks on the back benches were adamant that Hammond did not loosen the reins on government spending. Hammond managed to remain superficially committed to his fiscal targets – although the promise to balance the books by 2015 will not be fulfilled even a decade later at the current pace.
However, Hammond did actually loosen fiscal policy in the next two years.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The chancellor has been bolder than widely expected and has bowed to pressure to ease the near-term pace of the fiscal consolidation.
“The cumulative forecast for borrowing between 2017/18 and 2021/22 has been revised up by £29bn, even though borrowing is expected to come in £8bn lower than originally expected this year. Most of that revision – £22bn – has reflected today’s giveaways, which mean that the fiscal consolidation no longer will intensify next year.”
“Keynes’s spirit lives on” in a Budget that “gives up on austerity”, according to Douglas McWilliams, founder of the Centre for Economics and Business Research. “The chancellor has adopted Keynesianism and now hardly plans to reduce borrowing at all over the next five years.”
He added: “The Chancellor has gone for broke. He has no margin left for error.”
Brexit and the watching EU
And of course Brexit negotiations still loom over the whole Budget and the government’s longer-term economic plan. There was no mention of the uncertainty around the negotiation period, the size of the Brexit bill, or even if a deal will be forthcoming.
Ian Kernohan, an economist at Royal London Asset Management, said: “The shape of Brexit is still the key determinant of the medium-term economic outlook, and further clarity on the UK's new trading arrangements will be more important than anything announced in this Budget.”
Neil Williams, group chief economist at Hermes Investment Management, said: “With Brexit yet to be financed, Mr Hammond was today never going to show other EU governments watching unbridled fiscal largesse.”