Strategy blog: UK Spring Statement

Strategy team: Victor Balfour

The fiscal update and policy changes in March's Spring Statement are important to the domestic political debate, but (as usual) we do not believe these will affect the economic or investment outlook materially.

The hit to growth and household incomes from energy costs will be a little smaller than it otherwise would have been as a result of the Chancellor's measures, but the big picture is intact. The UK is waiting, with the rest of the world, to see just how high its inflation peak will be, how much of an economic slowdown lies ahead, and how interest rates will respond to it all. The answers will be largely shaped by events in Ukraine – events whose humanitarian significance makes these economic questions seem trivial.

Here are a few points overlooked by much of the media coverage this morning:

  • "The biggest fall in living standards since the 1950s" (The Times) is estimated at 2% and refers to a single financial year's drop (in 2022/3). Real household disposable incomes per capita fell further, albeit over a longer period, after the global financial crisis, and on several occasions during the 1970s.
  • After cutting its 2022 growth forecasts, the Office for Budget Responsibility still expects the economy to expand almost 4%. Projected growth in 2023 has been nudged higher, to almost 2%. Employment is expected to continue growing too.
  • Solid growth in GDP, despite falling real household disposable incomes, reflects other sectors doing better (notably, government). If this is an economic crisis, it is one focused on distribution and fairness, not macroeconomics.
  • The OBR has again been too pessimistic on near-term unemployment and government borrowing (which will come as no surprise to our regular readers).
  • In particular, the government deficit has been falling much faster than the OBR suggested as recently as October: the deficit for 2021/22 is now projected at £128bn, compared to £183bn then (an improvement of more than 2% of GDP).
  • The deficit is projected to continue to fall, despite yesterday's package of fuel support measures, extended National Insurance thresholds and reduced fuel duties worth a total of £19bn (almost 1% of GDP) in a full year.
  • The peak in government net debt is now put at just below 96% of GDP, in 2021/2 – that is, (almost) behind us. In March 2021, at the height of pandemic-related uncertainty (and economist overreaction…) the peak was put at 110%, in 2023/4.


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