NIESR Press Note: NIESR Researchers react to the Spring Budget announcement
Research Fellow Oriol Carreras said: “The upgrading of the OBR’s growth forecast for this year is an expected development due to the carry over effect that comes from changes to data on the performance of the economy in 2016. However the process of leaving the EU is likely to be protracted and the short term resilience of the economy provides little information about the long-run prospects for the UK outside the EU”.
Research Fellow Rebecca Piggott said: “With consumer price inflation reaching 1.8 per cent in the 12 months to January and pass through from the sharp depreciation of sterling in 2016 unlikely to have been completed, we view the OBR’s inflation forecast of 2.4 per cent in 2017 as too conservative. We expect CPI inflation to peak at around 3.7 per cent at the end of this year, around a full percentage point higher than the OBR. With wages failing to keep pace with this acceleration in the price level, we think the OBR’s projections real income and consumer spending growth are too optimistic.”
Simon Kirby, Head of Macroeconomic Modelling and Forecasting said: “The Chancellor announced that public sector net borrowing has been revised down compared to the projections in the OBR’s November 2016 Economic and Fiscal Outlook throughout the forecast period, with more than 2/3 of the downward revision concentrated into fiscal year 2016/17. Nonetheless, borrowing over the period 2016/17 to 2020/21 is still expected to be around £100 billion higher than forecast this time last year.”
Associate Director Dr Heather Rolfe said: “The Chancellor’s proposals for investment in intermediate level skills training via T levels will be welcomed by employers as addressing a long neglected area of skills investment. Earlier this week the Treasury appeared to brief journalists about this measure as a response to an anticipated fall in the supply of EU migrants once the UK leaves the EU. However, the connection is somewhat false in that EU migrants are, in most sectors, a very small proportion of higher level technical workers. At the same time, our research with employers on the impact of Brexit and projected fall in EU workers, something the Chancellor was today silent about, is indicating a growing interest in automation to help address labour shortages. This this will mean the loss of unskilled manual jobs in sectors such as food processing. But new and more technically demanding roles may attract school leavers through T Levels to industries which they have long-since rejected. Employers are cautious about innovation until they have clarity about the terms of Brexit. They will also be looking for extra Government investment in automation which does not appear to be currently on the table.”
Research Fellow Monique Ebell said: “It is interesting that there was little mention of Brexit in the Chancellor’s speech. While the initiatives to support STEM PhDs, invest in 5G mobile and fibre broadband technologies and improve infrastructure are welcome, it remains to be seen how effective they will be at spurring private sector investment and increasing productivity. These measures may lead firms to the water, in terms of increasing investment, but will the heightened level of Brexit-related uncertainty make them reluctant to drink?"
For more information on the latest UK NIESR forecast, see here.
Notes for editors:
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