Post on 16-Aug-2020
Economic and fiscal outlook
Robert ChoteChairman
22 November 2017
Coverage and process
• Five year forecasts, plus assessment of targets
• Independent BRC responsible for conclusions
• Met with Chancellor and officials on 3 November
• Final pre-scorecard forecast on 9 November
• No pressure to change anything
• Change in spending profile notified late
Key points
Weaker outlook for economic growth• Growth slightly weaker than expected so far this year• Weaker outlook for growth over the medium term• Reflects judgements on productivity flagged in October
Deficit smaller near-term, but bigger thereafter• Deficit smaller than expected 2016-17 and 2017-18• Thereafter weaker economic growth raises borrowing• Fiscal policy loosened from 2017-18 to 2021-22, tightened in 2022-23
Government on course for targets, but not a surplus• Structural borrowing and debt targets met with room to spare• Forecast changes and giveaway reduce room for manoeuvre• Balancing budget in medium term looks even more challenging
Quarterly GDP growth
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
March 2017
November 2017
Perc
en
tag
ech
an
ge
on
a q
ua
rter
ea
rlie
r
Quarterly GDP growth
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
March 2017
November 2017
Perc
en
tag
ech
an
ge
on
a q
ua
rter
ea
rlie
r
Annualised GDP growth
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Euro area US Canada* Japan UK
2016 H2
2017 Q1-Q3
Per
cen
t (a
nn
ua
lise
d)
GDP, hours and productivity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
March November
Q4
20
16
to Q
3 2
01
7 g
row
th (
per
cen
t) GDP
GDP, hours and productivity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
March November
Q4
20
16
to Q
3 2
01
7 g
row
th (
per
cen
t) GDP
March November
Hours
March November
Productivity
Potential output judgements
Potential hours worked
• Adult population• Activity rate• Employment rate• Average hours
Productivity
• Output per hour
Productivity growth
80
85
90
95
100
105
110
115
120
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
November 2017Successive forecastsJune 2010Outturn
2009Q
1 =
100
Net inward migration
0
50
100
150
200
250
300
350
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Thou
san
ds
of
peop
le
Estimate
2014-based
2016-based
Net inward migration profile
-10
-5
0
5
10
15
20
0 10 20 30 40 50 60 70 80
Thou
san
ds
of
peop
le
Age
Difference
2014 based
2016 based
Participation rate
62.0
62.5
63.0
63.5
64.0
2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22
Per
cen
t
March November
Unemployment and wages
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Per
cen
t
Unemployment rate Wage growth
Average hours worked
30
31
32
33
34
1997 2002 2007 2012 2017 2022
Ave
rag
e h
ou
rs
March 2017 November 2017 Outturn
Potential and actual GDP growth
94
96
98
100
102
104
106
108
110
112
114
2017Q2 2018Q3 2019Q4 2021Q1 2022Q2
2017 Q
2 =
100
March (potential) November (potential)
March (actual) November (actual)
Potential and actual GDP growth
94
96
98
100
102
104
106
108
110
112
114
2017Q2 2018Q3 2019Q4 2021Q1 2022Q2
2017 Q
2 =
100
March (potential) November (potential)
March (actual) November (actual)
Potential and actual GDP growth
94
96
98
100
102
104
106
108
110
112
114
2017Q2 2018Q3 2019Q4 2021Q1 2022Q2
2017 Q
2 =
100
March (potential) November (potential)
March (actual) November (actual)
Quarterly GDP growth
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2016 2017 2018 2019 2020 2021 2022
March 2017 November 2017
Perc
en
tag
ech
an
ge
on
a y
ea
r ea
rlie
r
Cumulative GDP growth revision
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
Q12017
Q2 Q3 Q4 Q12018
Q2 Q3 Q4 Q12019
Q2 Q3 Q4 Q12020
Q2 Q3 Q4 Q12021
Q2 Q3 Q4 Q12022
Perc
en
tag
e p
oin
ts
Other factorsNet tradeGovernment spendingDwellings investmentBusiness investmentPrivate consumptionGDP
Actual GDP growth
-2
-1
0
1
2
3
4
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cen
t
November
March
Actual GDP growth
1.71.5 1.5
2.1
3.1
2.31.8
1.5 1.4 1.3 1.3 1.5 1.6
-2
-1
0
1
2
3
4
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cen
t
November
March
Nominal GDP growth
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Sustainableunemployment
Wholeeconomy
prices
Otherfactors
Change innominal GDP
growth forecast
Lowering nominal GDP
Increasing nominal GDP
Perc
en
tag
e p
oin
t re
visi
on
to g
row
th f
rom
2017-1
8 t
o 2
021-2
2
Participationrate
Average hours
Populationgrowth
Productivitygrowth
Potential output growth
Nominal GDP growth
Cumulative percentage growth, 2017-18 to 2021-
22March November Difference
Nominal GDP 15.3 12.6 -2.7
Wages and salaries 14.9 11.9 -3.0
Non-north sea profits 16.0 13.5 -2.5
Nominal consumer spending 15.7 13.7 -2.0
Real business investment 16.5 9.7 -6.8
Earnings growth: March
-4
-3
-2
-1
0
1
2
3
4
5
6
2005 2007 2009 2011 2013 2015 2017 2019 2021
Per
cen
t
Nominal earnings growth Real earnings growth
Earnings growth: November
-4
-3
-2
-1
0
1
2
3
4
5
6
2005 2007 2009 2011 2013 2015 2017 2019 2021
Per
cen
t
Nominal earnings growth Real earnings growth
Public sector net borrowing
-20
0
20
40
60
80
100
120
140
160
180
06-07 08-09 10-11 12-13 14-15 16-17 18-19 20-21 22-23
£ b
illion
March
November
Public sector net borrowing
-20
0
20
40
60
80
100
120
140
160
180
06-07 08-09 10-11 12-13 14-15 16-17 18-19 20-21 22-23
£ b
illion
March
November
-8.4-1.3
+13.4+12.2 +13.3
Change in net borrowing
-8.4
-1.3
+13.4 +12.2 +13.3
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Change in net borrowing
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Change in net borrowing
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Change in net borrowing
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Change in net borrowing
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Change in net borrowing
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
Underlying forecast revisions
-6.3
+1.3
+9.2+13.7
+17.6
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
Underlying forecast revisions
-20-15-10-505
10152025303540
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
Latest data
Productivity
Average hours
Sustainableunemployment
Populationprojections
Fiscal modelling
Other economychanges
Total
LA current spending vs budgets
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
£ b
illi
on
Environmental andregulatory
Highways and transport
Fire & rescue and police
Housing and planning &development
Adult social care
Children's social care
Central and cultural &related services
Public health
Total
Overspend against budgets
Underspend against budgets
*Excludes education spending
Changes to LA reserves
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
£ b
illi
on
GLA
Non-social care
Social care
Total
LA current spending
0
1
2
3
4
5
6
7
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
Per
cen
t of
GD
P
Education
Non-education
Total
Impact of Budget decisions
+0.7
+2.7
+9.2
+3.6+1.5
-3.1
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Profile of resource spending
-7
-6
-5
-4
-3
-2
-1
0
1
15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Cu
mu
lati
ve c
ha
ng
e i
n r
ea
l sp
en
din
g
per
cap
ita
March
November
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Profile of capital spending
-5
0
5
10
15
20
25
30
35
40
15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Cu
mu
lati
ve c
ha
ng
e i
n r
ea
l sp
en
din
g
per
cap
ita
March
November
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
Impact of Budget decisions
-8-6-4-202468
10121416
17-18 18-19 19-20 20-21 21-22 22-23
£ b
illi
on
RDEL policy changes
CDEL policy changes
AME policy changes
Gross tax cuts
Gross tax rises
Indirect effects
Total
St Augustine rides again
-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
Year 1 Year 2 Year 3 Year 4 Year 5
Ave
rag
e e
ffect
of
Gove
rnm
en
t d
eci
sion
s on
PSN
B (
per
cen
t of
GD
P)
Autumn Budget 2017
Spending Review 2010 toSpring Budget 2017
Impact of policy decisions: 2018-19
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Dec13
Mar14
Dec14
Mar15
Jul15
Nov15
Mar16
Nov16
Mar17
Nov17
Per
cen
t of
GD
P
Individual fiscal events Cumulative effect
Change in net borrowing
-1.4
-3.9 -3.5 -3.4 -4.1
-15
-10
-5
0
5
10
15
20
25
17-18 18-19 19-20 20-21 21-22
£ b
illi
on
ONS statisticalchanges
Underlyingforecast changes
Effect ofgovernmentdecisions
HAs moved toprivate sector
Total
HA classification
“The fundamental question is ‘does government exercise significant control over the general corporate policy of the unit?’ The difference between the public and private sectors is determined by where control over the organisation lies, rather than by ‘ownership’ or whether or not the entity is financed from public funds.”
(Office for National Statistics)
DCLG on reclassification I
“Today we’re [sic] reclassifying housing associations, taking them out of the public sector and off the government’s balance sheet. I know it sounds like a piece of bureaucratic box-ticking. But the results will be far-reaching. Freed from the distractions of the public sector, housing associations will be able to concentrate on developing innovative ways of doing their business, which is what matters most: building more homes”.
(DCLG SoS, 16 November)
DCLG on reclassification II
“The only reason these regulations have been introduced is to seek ONS to reclassify housing associations to the private sector. In preparing [them], we have ensured that these only go as far as we have to, to reclassify housing associations… Local authorities remain able to influence housing associations through the various contracts and other agreements jointly negotiated.”
(DCLG written evidence to HoL, Sept/Oct)
HA impact on public finances (March)
0.0
0.1
0.2
0.3
08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P Net borrowing
0
1
2
3
4
5
08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P Net debt
HA impact on public finances (November)
0.0
0.1
0.2
0.3
08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P Net borrowing
0
1
2
3
4
5
08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P Net debt
The Government’s targets
Fiscal mandate
-4
-2
0
2
4
6
8
10
2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23
Per
cen
t of
GD
P
November March
Fiscal mandate
-4
-2
0
2
4
6
8
10
2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23
Per
cen
t of
GD
P
November March
Mandate: room for manoeuvre
Headline Like-for-like
£bn %GDP £bn %GDP
Margin in March 25.8 1.1 30.8 1.4
Reclassification and accounting changes +5.1 +0.2
Underlying forecast changes -12.5 -0.5 -12.5 -0.5
Government decisions -3.6 -0.2 -3.6 -0.2
Margin in November 14.8 0.7 14.8 0.7
Fiscal mandate: November
-4
-2
0
2
4
6
8
10
2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23
Per
cen
t of
GD
P
November March
Target: structural deficit <2% of GDP in 2020-21
1.3% of GDP deficit implies a 65 per cent probability of being met
Public sector net debt
60
65
70
75
80
85
90
95
10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P
March
November
Debt falls 3.9% of GDP in 2020-21
Public sector net debt
60
65
70
75
80
85
90
95
10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23
Per
cen
t of
GD
P
March
November
Debt falls 3.0% of GDP in 2020-21
Public sector net debt
Per cent of GDP 16-17 17-18 18-19 19-20 20-21 21-22
March 86.6 88.8 88.5 86.9 83.0 79.8
November 85.8 86.5 86.4 86.1 83.1 79.3
Change -0.8 -2.3 -2.1 -0.8 0.2 -0.5
of which:Housing associations - -3.2 -3.3 -3.4 -3.4 -3.4Term funding scheme 0.2 1.9 1.9 1.8 1.6 0.0
Budget measures 0.0 0.1 0.3 0.6 0.8 0.7Other underlying forecast
changes -0.4 -0.7 -0.9 -0.6 -0.1 0.6
Nominal GDP -0.6 -0.5 0.0 0.7 1.2 1.6
Change in net debt in 2018-19
Per cent of GDP
March forecast -0.3
Lower nominal GDP +0.5
Policy measures +0.3
Underlying forecast changes +0.1
HAs out of public sector -0.1
UKAR and asset sales -0.5
November forecast 0 (-0.03)
The welfare cap
£ billion
17-18 18-19 19-20 20-21 21-22
Welfare cap and pathway plus margin 120.8 121.9 122.9 126.3 129.7
November forecast adjusted for inflation 119.3 120.8 122.1 124.1 127.2
Headroom (November) -1.5 -1.1 -0.8 -2.2 -2.5
March forecast adjusted for inflation 119.6 120.0 120.0 122.5 125.2
Headroom (March) -1.2 -1.9 -2.8 -3.7 -4.5
The welfare cap
£ billion
17-18 18-19 19-20 20-21 21-22
Welfare cap and pathway plus margin 120.8 121.9 122.9 126.3 129.7
November forecast adjusted for inflation 119.3 120.8 122.1 124.1 127.2
Headroom (November) -1.5 -1.1 -0.8 -2.2 -2.5
March forecast adjusted for inflation 119.6 120.0 120.0 122.5 125.2
Headroom (March) -1.2 -1.9 -2.8 -3.7 -4.5
The welfare cap
£ billion
17-18 18-19 19-20 20-21 21-22
Welfare cap and pathway plus margin 120.8 121.9 122.9 126.3 129.7
November forecast adjusted for inflation 119.3 120.8 122.1 124.1 127.2
Headroom (November) -1.5 -1.1 -0.8 -2.2 -2.5
March forecast adjusted for inflation 119.6 120.0 120.0 122.5 125.2
Headroom (March) -1.2 -1.9 -2.8 -3.7 -4.5
The ‘fiscal objective’
The Charter commits the Government to • “return the public finances to balance at the earliest possible
date in the next Parliament”
Even more challenging than March• Deficit only falls 1.1% of GDP in 2022-23, compared to 0.7% of
GDP in 2021-22 in March• If deficit were to continue falling at post Spending Review rate it
would not balance until 2030-31• And ageing and other spending pressures in health
Conclusion
Weaker outlook for the economy• Trend productivity growth revised down• But some offsets from hours and employment
Fiscal outlook deteriorates over time• Deficit revised down last year and this year• Weaker economy raises borrowing thereafter• Budget adds more to borrowing• Fiscal mandate met, but headroom halved• Balancing budget more challenging