Chancellor George Osborne sprung a huge surprise in today’s Autumn Statement as he avoided a new borrowing avalanche in his bid to tackle the deficit.
The independent Office for Budget Responsibility confounded the expectations of a raft of City experts as Osborne said borrowing would be £8 billion lower than forecast over the course of the parliament, while the watchdog also lifted growth forecasts for next year and 2017.
The figures come days after the latest dire public finance figures put the Chancellor on course to bust the OBR’s £69.5 billion deficit target for the current financial year set in July’s Budget by as much as £10 billion.
One City economist called the fall in borrowing as “quite amazing” and “suspicious”. Richard Murphy - an economic adviser to Labour leader Jeremy Corbyn - called the numbers “pure fantasy”, tweeting: “Borrowing way above expectation this year so far but OBR says will fall for year as a whole. Nonsense.”
The Chancellor said the OBR had revised up its estimates of the tax take over the course of the parliament while the cost of servicing UK’s debt burden had fallen. This is most likely because of the impact of lower inflation on index-linked gilts, as well as expectations that interest rates will stay lower for longer.
Osborne is committed by law to eliminate the deficit completely by the end of the parliament in 2019/20 and had been expected to have less breathing space to act due to the weaker recent trends in the public finance figure. But the OBR maintains that the UK accounts will deliver a £10.1 billion surplus in 2019/20 - in fact marginally higher than the £10 billion forecasted in July.
The Chancellor quoted new borrowing figures adjusted for taking housing associations onto the public balance sheet, making comparisons with the most recent published forecasts difficult. But he claimed that borrowing would fall from an adjusted £74.1 billion to £73.5 billion in the current financial.
Osborne admitted that prospects for global growth have also darkened since the summer Budget - underlined by worries over the health of previously fast-growing economies like China and Brazil - prompting the OBR to cut its world growth forecast.
But the watchdog has raised its growth forecast for next year from 2.3 per cent to 2.4 per cent and from 2.4 per cent to 2.5 per cent in 2017, although its estimates for the economy’s forecast was cut from 2.4 per cent to 2.3 per cent in both 2019 and 2020.
