Office for Budget Responsibility

40% chance of balancing budget

The Office for Budget Responsibility says the Government’s stated "fiscal objective" is to balance the budget by 2025-26.

"Past forecast performance suggests that it now has a 40% chance of doing so by the end of our forecast in 2023-24%".

But, the OBR says, the medium-term outlook is uncertain because the ageing population is likely to be putting increasing upward pressure on spending and because of the potential impact of different Brexit outcomes.

OBR: 'considerable uncertainty'

The Office for Budget Responsibility (OBR) says its forecast for the economy has been produced against the backdrop of "considerable uncertainty over the next steps in the Brexit process".

"With discussions in Brussels continuing and Parliament scheduled to vote on various Brexit-related questions in the week of the Spring Statement, we have no meaningful basis for changing the broad-brush assumptions that have underpinned our forecasts since the referendum.

So we continue to assume – consistent with government policy at the time we finalised our forecast – that the UK makes an orderly departure from the EU on 29 March into a transition period that lasts to the end of 2020."

'Loosen spending taps'

Today Programme

BBC Radio 4

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Paul Johnson, director of the Institute for Fiscal Studies, has been talking to BBC Radio 4's Today Programme about the public finance data which was released on Thursday. It showed the largest monthly surplus since records began.

"These numbers keep on coming rather nicely" for Chancellor Phillip Hammond, he said.

But, he added, that Mr Hammond had already "spent every last penny" of the £20bn that the Office for Budget Responsibility gave him in October's budget. It was spent on the NHS.

"So if he wants to move away form austerity... and stop cuts everywhere else he will actually have to find more money still," Mr Johnson said.

It depends on his fiscal rules, he said.

"From an economic point of view he probably could loosen the spending taps a little bit," he said,

OBR forecast

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OBR

The Office for Budget Responsibility has commented on the public sector finances data, which showed the largest January borrowing surplus since records began in 1993.

"Double-digit growth in tax receipts in January generated a record monthly budget surplus, up sharply relative to last year. Over the first ten months of 2018-19, borrowing is now down almost half relative to the same period in 2017-18 – a slightly larger fall than implied by our latest full-year forecast." the OBR said.

The fall in borrowing has been greater than its forecast because of an increase in tax receipts while spending growth has been weaker because of a 9% fall in debt interest.

"There is particular uncertainty over Brexit-related spending int he final months of 2018/9," it said.

This was the final data release before the OBR's next forecast on 13 March - alongside Philip Hammond's Spring Statement.

Growth downgrades?

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The economic forecasting group EY Item Club points out that Philip Hammond, the Chancellor, may have to set out downgrades to the growth forecasts from the Office for Budget Responsibility in the Spring Statement on 13 March.

The record high in January public finances will be a "welcome boost" against a "worrying backdrop".

"With the economy clearly struggling early on in 2019 after a sharp slowdown in the fourth quarter of 2018 and the Brexit situation highly uncertain, the Chancellor will have a lot on his mind when he presents the Spring Statement.

"It looks highly likely that he will have to announce downgraded growth forecasts from the OBR at least for the near-term with possible negative ramifications for expected budget deficits," the EY Item Club said.

The Bank of England has already cut its forecasts for growth this year to 1.2% from 1.6%.

Headroom

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ONS

These are the last public finance figures before Philip Hammond's Spring Statement next month, Thomas Pugh, UK economist at Capital Economics, points out.

He said the figures show the government is on track to undershoot the forecast by the Office for Budget Responsibility for £25.5bn of borrowing in 2018/9 financial year.

He calculates the Chancellor has £15bn of "headroom" for spending compared to his fiscal rules.

"If a Brexit deal is secured, we think that a pick-up in economic growth in 2019 will increase the size of that headroom. And if there is a no-deal Brexit, the Chancellor should have plenty of scope to support growth, and if needed to the Chancellor would sacrifice his fiscal rules for the economy," he said.