Economic Indicators, Spring Statement 2019 Edition

The Library briefing paper Spring Statement 2019: Background briefing contains background information on the 2019 Spring Statement, which will take place on Wednesday 13 March 2019. This is a slightly amended version of the summary of that paper.

The Chancellor, Philip Hammond, will make his Spring Statement on 13 March 2019. The Office for Budget Responsibility (OBR) will publish revised forecasts for the economy and public finances on the same day.

The Chancellor’s statement is likely to largely be a response to the OBR’s forecasts.

Brexit: votes in Parliament

Spring Statement 2019 is set to take place at a time when Parliament’s attention will be focused on the UK’s withdrawal from the EU. In particular, the House of Commons will have a ‘meaningful vote’ on the EU-UK Withdrawal Agreement and framework for the future relationship on 12 March 2019. If the Commons again rejects the deal, there will be a vote on whether MPs support leaving the EU without a deal, on 13 March. If the Commons rejects leaving without a deal, there will be a vote on requesting an extension of the withdrawal process (Article 50), on 14 March.

Brexit: the OBR’s forecasts

Forecasting is difficult at the best of times. The UK’s withdrawal from the EU makes it even more so, not least because Brexit isn’t a momentary event, but an extended process of changing policy.

Since the EU referendum result the OBR has assumed that the UK-EU negotiations “lead to an orderly transition to a new long-term relationship, whatever that relationship may be.” If the UK’s withdrawal is less than orderly, then the OBR’s outlook for the economy and public finances is likely to become more pessimistic in future forecasts.

Economic situation

GDP growth of 1.4% in 2018 was the slowest since 2012, with growth easing towards the end of the year. Two key factors behind this slowdown were a weaker global economy and uncertainty related to Brexit.

The world economy has been characterised by the Chinese economy growing less quickly, trade tensions (particularly between the US and China), and a sharply slowing Eurozone economy. Domestically, Brexit-related uncertainty has been blamed for falling business investment as the UK approaches its scheduled date for leaving the EU on March 29. Consumer spending has underpinned growth recently, supported by a historically-high proportion of the population in employment and average wage growth starting to pick-up.

The outlook for 2019 is dominated by Brexit and on what terms the UK leaves the EU. Under an assumption of an ‘orderly’ or ‘smooth’ departure from the EU, GDP growth of around 1-1½% for 2019 is generally forecast by economists. Should the UK leave the EU without a deal, disruption is expected to lead to weaker growth. The Bank of England Governor Mark Carney has said he “guarantee[s]” the Bank’s GDP forecasts would be lowered in such a scenario. The OBR has previously warned that there could be severe short-term implications of a no-deal Brexit, although the scale is hard to predict.

Public finances

Government borrowing has decreased from the peaks reached following the 2007-2008 financial crisis, and is now at a typical level. Government borrowed £42 billion in 2017/18 to make up the difference between its spending and income raised from taxes and other sources. At 2% of GDP, this was below the average for the past 70 years.

While the Government’s borrowing situation has improved, its debt – broadly speaking the stock of past borrowing – remains high. Public sector net debt at the end of 2017/18 was equal to 85% of GDP. The debt-to-GDP ratio was last above 85% in the mid-to-late 1960s, when it was still recovering from reaching over 200% of GDP during World War II.

Further information

The Library will publish a summary of Spring Statement 2019 on the evening of 13 March.