The Spring Statement: few forecasting or policy changes expected 

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Chancellor’s Spring Statement:

  • The Spring Statement is due on Wednesday 13 March.
  • The OBR will revise the economic forecasts. In October 2018, they projected 1.3% growth for 2018 (outturn 1.4%), 1.6% for 2019 and 1.4% for 2020. Given the weak 2018Q4 figure, the OBR may downgrade growth for 2019 to, say, 1-4%-1.5%.
  • The OBR will also revise the public finances forecasts. The OBR forecast Public Sector Net Borrowing (PSNB) of £25.5bn for FY2018 in October, they could revise this down by £2-3bn. Thereafter, the forecasts would be affected by the fiscal significance of the Chancellor’s policy statements. But few are expected.
  • The Chancellor is expected to meet his main fiscal targets, which are the fiscal mandate on the structural deficit and the supplementary target on the falling debt/GDP ratio.
  • The Chancellor may say more about the 2019 Spending Review (no date yet), which runs up to FY2023.

In addition:

  • The much-followed Markit surveys were subdued in February. On the basis of their surveys to date, Markit estimates that GDP growth could be just 0.1% in 2019Q1.
  • On Brexit, the next Commons “meaningful vote” on the “deal” is expected on 12 March. If the “deal” is rejected, a vote on support for No Deal is expected on 13 March. If that is also rejected, a vote on delaying Brexit is expected on 14 March.
  • The ECB revised their growth forecasts in March for the Eurozone to 1.1% for 2019 (1.7% in December, sharp cut) and to 1.6% for 2020 (1.7% in December, minor cut).
  • The ECB responded to the economic weakness by easing monetary policy. They said there would be no changes to interest rates “at least through the end of 2019” (previously the forward guidance was “at least through the summer”). The ECB also announced a new series of operations, offering banks cheap loans to stimulate their lending to households and businesses.
  • The OECD revised their growth forecasts in March for the Eurozone to 1.0% for 2019 (1.8% in November, sharp cut) and to 1.2% for 2020 (1.6% in November, cut). There were sharp downgrades to German and Italian prospects. They also revised their UK forecasts to 0.8% for 2019 (1.4% in November) and 0.9% for 2020 (1.1% in November).

Ruth Lea said, “The OBR may shave GDP growth down for 2019 and modestly revise lower the PSNB for FY2018, but there are few expectations of major forecasting changes in the Spring Statement. Similarly, there is currently little speculation there will be any fiscally significant policy changes. There is, moreover, little economic need for the Chancellor to alter fiscal course and, for example, propose any fiscal stimulus. The economy is ticking over and the labour market is robust. If, indeed, he has any fiscal “windfall”, he should bank it not spend it. Given the high debt/GDP ratio, there is still a need for caution and prudence in the public finances. Note too, the public spending/GDP ratio is still as high as 38% whilst the tax/GDP ratio, at around 34.5%, is the highest for nearly 50 years.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674

Would you like to receive Arbuthnot Latham’s fortnightly Economic Perspectives from Ruth Lea CBE directly to your email inbox? Click the button to subscribe to our email newsletters.