Bank of England to give UK GDP a ‘modest’ upgrade after Autumn Statement, analyst claims
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The Bank of England is likely to give the UK economy a “modest” upgrade following the impact the Autumn Statement, a leading analyst has predicted.
In last week’s fiscal event, Chancellor Jeremy Hunt unveiled a fiscal loosening worth £18bn, the majority of which came from tax cuts.
In a surprise move, Hunt cut the rate of national insurance by two percentage points and also made the full expensing of capital investment permanent.
Sanjay Raja, chief UK economist at Deutsche Bank, said the MPC will see a “meaningful upgrade to their government spending assumptions, especially in 2024,” as a result of the policies.
“This will result in a modest upgrade to the Bank’s growth projections (particularly for 2024), all things equal,” he continued.
The Bank predicts almost zero growth over the next two years, while, despite hefty downgrades, the Office for Budget Responsibility (OBR) expects the UK to grow 0.7 per cent next year before picking up to 1.4 per cent the year after.
Focusing specifically on the measures announced by Hunt last week, the fiscal watchdog forecast a “modest boost” to output of 0.3 per cent in five years time.
Speaking last week, Richard Hughes, chair of the OBR, said “0.3 per cent doesn’t sound very much but it is one of the biggest growth upgrades we have ever done for policy in our forecasts”.
“It is really hard to accelerate the growth rate of this country,” he continued.
Although the Bank is likely to raise its expectations in its next forecast in February, markets are now less confident that rate cuts will begin in the first half of next year.
Raja said the Autumn Statement had “raised the bar for H1-24 rate cuts” while analysts at Capital Economics expected the government’s fiscal policy to push the first rate cuts back even further.
“The near-term boost to the economy from the new tax cuts may just mean inflation is a bit higher than otherwise. This supports our view that the Bank of England won’t cut interest rates from 5.25 per cent until late in 2024,” they said.