For the first time ever, the OBR’s forecast for the UK economy is in line with Cebr’s. In fact the forecast average growth to 2022 is 0.1% per annum less than ours’.

 

The government’s move to pessimism about the economic outlook has worried the financial markets and the pound and gilt yields have edged down.

 

The causes of the more pessimistic growth outlook are: 1) a more realistic take on productivity picking up Cebr’s own analysis of the impact of the lifestyle economy and 2) increased nervousness about the impact of Brexit on business investment.

 

As a result the Chancellor has adopted Keynesianism and now hardly plans to reduce borrowing at all over the next 5 years. As recently as March he had planned to reduce borrowing by £40 billion between 2016/17 and 2021/22. Now the planned reduction is £15.6 billion.

 

The budget has announced plans for increased public spending in a wide range of areas from the NHS through easing the introduction of universal credit. But the centrepiece is a £44 billion housebuilding boost which is planned to lead to a total increase in the housing supply of 300,000 a year.

 

We have used Cebr’s housing models to estimate the impact of the housing package. Our first rough and ready set of calculations suggests that we will get an additional level of building of 30,000 to 50,000 over the next 10 years. We estimate that this will reduce the increase in house prices by about 4% over the same period. We still expect on balance a net increase in house prices at an annual rate of 3-4% over this period. While the announced measures fall short of solving the affordability crisis, any increase in supply is welcome and scrapping stamp duty for first-time buyers is a step in the right direction to reduce the generational inequality prevalent in the housing market.

 

The risks to this budget are threefold. First the markets may take fright at the fact that even a Conservative government, let alone an alternative that might be led by Mr Corbyn, has no serious plans to cut borrowing dramatically. And the normal tendency for Budget announcements is to overshoot costs.

 

Second, while the Budget sums add up in today’s world of strong international trade growth, any faltering in world growth would destabilise the sums completely.

 

 

Third, if Brexit turns out to be more complicated than planned, there is no further scope to cushion its effects.

 

The Chancellor has gone for broke. He has no margin left for error.

 

Changed forecasts of net borrowing, £ billions

Contact:  Douglas McWilliams

07710 083 652