Growth revised up to 2.7pc, borrowing and deficit down

 
Harriet Green
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Growth

Following growth of a more sturdier kind than the Office for Budget Responsibility originally forecast last year, it’s nudged long-term growth forecasts higher, as the chancellor delivers something of a more confident Budget.

The OBR’s revised its 2014 growth forecast up to 2.7 per cent - the biggest upwards revision to growth in 30 years.

By end of the year, OBR think the UK will reach a point where economy’s larger than it was pre-crisis. It has warned, however that volatility in emerging markets, including that in Ukraine, could mean higher commodity prices, inflation and lower growth.

The downward revisions to predictions for later years are because the OBR’s judge that the economy’s spare capacity will be used up more quickly than it previously thought - at a speed closer to the Bank of England’s forecast.

OBR:
2014 - 2.7 per cent
2015 - 2.3 per cent
2016 - 2.6 per cent
2017 - 2.6 per cent
2018 - 2.5 per cent (around its long-term trend)

OBR in December:
2013 - 1.4 per cent
2014 - 2.4 per cent
2015 - 2.2 per cent
2016 - 2.6 per cent
2017 - 2.7 per cent
2018 - 2.7 per cent

Bank of England:
2013 - 1.9 per cent
2014 - 3.4 per cent
2015 - 2.7 per cent
2016 - 2.9 per cent

Deficit

Is down by a third, and will be down by a half by the end of this year, said Osborne.

The UK’s budget deficit will be 6.6 per cent next year, 4.4 per cent in subsequent years, reaching 0.8 per cent. In 2018/19, the OBR has forecast there will be no deficit.

Last year, the country’s deficit was more than 5.5 per cent of GDP. Osborne said it was likely to stay at a whopping £120bn for 2013-14 and 2014-15.

Borrowing

This year, borrowing’s at £108bn - £12bn less than a year earlier. Over the next few years: £95bn, £75bn, £44bn, £17bn. In 2018/19 a surplus is expected/

Britain will be borrowing £24bn less than last forecast over the next few years.

The narrowing of the output gap means there’s less room for borrowing to be wiped out by growth and tax, so further spending cuts will need to be made to meet the pledge of a balanced Budget by 2018-19.

Treasury estimates predict that, for each one per cent of economic output, there’s a 0.5 per cent decrease in GDP in the first year and 0.2 per cent in the second.

OBR in December:
2013/14 - £111bn
2014/15 - £96bn
2015/16 - £78bn
2016/17 - £51bn
2017/18 - £23bn
2018/19 - £-2.2bn

Net debt

UK government debt is now set to peak at 78.7 per cent of GDP, says the OBR.

Osborne: Interest payments on the debt lower than expected, saving £2,000 per person.

Read our full summary of the budget here.