economic and fiscal outlookobr.uk/docs/dlm_uploads/efonov2017slides.pdf · • deficit smaller than...

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

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)

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


-15

-10

-5

0

5

10

15

20

25

17-18 18-19 19-20 20-21 21-22

£ b

illi

on





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


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


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


-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


-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


-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


-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





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

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


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


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 ‘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

economic and fiscal outlookobr.uk/docs/dlm_uploads/efonov2017slides.pdf · • deficit smaller than...

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