The Daily Telegraph, November 19, Roger Bootle
If you think you clearly comprehend the state of the UK’s public finances, then you don’t understand what is really going on.
This week’s Autumn Statement by the chancellor may create more bafflement. It will be an object lesson in squaring circles. He must keep the financial markets onside, placate the fiscal watchdog and make an attempt to enthuse his own MPs with a view to pleasing the voters in the coming general election.
Let’s begin with the good news: despite the negative influence from increased debt interest payments, the Office for Budget Responsibility (OBR) is likely to forecast this year’s borrowing to be some £16bn lower than it thought in March. This prospect is stimulating Conservative backbenchers’ hopes for tax cuts, if not now then at least in the budget next March.
But the reality is much more complicated. The gods at the OBR are difficult to please. Having under-estimated the performance of the economy this year, the OBR is likely to reduce its forecasts for 2024 and 2025, with real GDP in 2027/28 forecast to be no higher than it envisaged back in March.
Even so, the level of nominal GDP will be a fair bit higher than the OBR previously thought because of higher inflation. This is important because tax revenues are related to nominal GDP.
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