Statement leaves little spring in the step

The Chancellor of the Exchequer’s update on the economy and the public finances was certainly shorter than the usual March statement but Philip Hammond seemed determined to deliver a financial briefing as boring as his reputation.

Despite huge pressure on him to loosen the purse strings, he refused to grant any more money for public services or for the NHS.

The Office for Budget Responsibility’s figures show why: growth is now expected to be slightly better in 2018 but will worsen in 2021 and 2022.

The UK is now expected to see growth of 1.5% next year, up from a predicted 1.4% and growth of 1.3% (an unchanged prediction) in 2019 and 2020. By 2021, however when you might expect things to get better, growth is expected to be 1.4%, down from 1.5% and in 2022 1.5%, down from 1.6%.

To put this into context, US growth is expected to be 2.5% this year and Germany should see 2.3%. Growth of 1.5% would be the weakest in the G7 group of economic nations.

The Conservatives may be hailing a turning point, but the OBR begs to differ. It says the economy has only slightly more momentum in the near term and sees little to change its view that medium-term growth will be ‘subdued’.

The Chancellor will not be tempted into spending money because he knows a Brexit hit will arrive at some point.

So far any Brexit impact has been mitigated by consumers who have come to the rescue once again, preferring to spend rather than to save.

Yet there are gathering signs that consumer spending is now slowing, not least the number of administrations and closures amongst high street retailers and restaurant groups.

All the while Brexit talks struggle over free movement, trade deals and the Northern Ireland border, the looming problem is deferred. This week, Philip Hammond chose to keep his powder dry for when the problems hit home.

Hammond’s reputation does help the UK at this point. It is partly because he is a boring Chancellor, not prone to sudden unexpected fiscal surprises or splurges, that the UK can continue to borrow long-term at very low interest rates.

The UK is also being helped by the strength in the world economy, although it would be nicer to share in the rest of the world’s buoyant growth.

The UK has now had eight straight years of GDP growth since 2010 and the OBR is predicting five more. To achieve such a sustained period of economic growth would be highly unusual.

The implication is that to do so, we will continue to require low interest rates.

As business groups are always quick to mention, the UK’s economic health remains hampered by persistently low productivity. Hammond is trying to do something about this with investment in T Levels, a new form of A level qualification that is more vocational. He is also tackling problems with the apprenticeship levies that deter businesses from investing.

But the most obvious cause of chronic lack of investment in skills, training and hiring in the next couple of years has to be an unruly Brexit. There are many ways to count the cost of Brexit but the OBR estimated this week that the final divorce bill will be £37.1bn.

Payments to the EU will peak at £14.4bn to the EU in 2019 to 2020, but we’ll still be paying all the way until 2064.

For those who are still hopeful that savings will be achieved once we break free, the OBR runs through some of the bills that we will have to pay ourselves, in future. These are pledges to particular groups who will lose out, including support for farmers, science and education programmes and regulatory agencies.

As the charts show, there is ultimately no difference in what we would have paid and what we have to pay to support our solo status.

On top of that, there will also be a negative impact from lower immigration and lower productivity.

Spring may be in the air, but the Chancellor (and the economists at the OBR) gave us little to be cheerful about.