Philip Hammond is set to deliver a dose of economic cheer in next week’s Spring Statement thanks to sharply lower borrowing forecasts, but there will be no tax giveaways.
Economists believe Britain’s fiscal watchdog will nudge up near-term growth forecasts as the global economy powers ahead, while slashing expected Government borrowing for 2017/18 by as much as £7 billion.
But the Chancellor is likely to bank the windfall as a much-needed buffer, with the impact of Britain’s EU divorce bill on the public finances set to be laid bare for the first time alongside the statement.
The Office for Budget Responsibility (OBR) will estimate the hit to the public purse from Brexit payments to the EU every year for decades going forward.
This follows the Government’s agreement to pay between £35bn and £39bn under an initial Brexit settlement.
With the focus firmly on the economic forecasts and Brexit bill, the Spring Statement on 13 March is otherwise expected to be a non event after Mr Hammond made clear he wants to keep major announcements to the main Budget, which he has moved to November.
Samuel Tombs at Pantheon Macroeconomics is forecasting borrowing to be cut to £43bn for the year to the end of March, down from the £49.9bn predicted by the OBR in November.
It comes after official figures showed the second highest surplus since records began in January thanks to a bumper haul of tax receipts.
Mr Tombs said there will also be cuts to annual borrowing of £5.5bn on average through to 2022/23 despite higher payments on Government debt due to financial markets pencilling in a series of UK interest rate rises.
But he will hold on to the windfall for now, he added.
He said: “He will want to preserve fiscal firepower for when the UK finally has left the EU.
“Accordingly, we expect the Chancellor to bank his windfall and reassess in the autumn, when the Brexit and political outlook should be clearer.”
Experts at PwC believe there may also be scope for minor upward tweaks to the OBR’s gross domestic product (GDP) predictions after the economy has remained surprisingly robust thanks in part to strong global growth.
In November, the OBR downgraded GDP forecasts from 1.6 per cent to 1.4 per cent in 2018, from 1.7 per cent to 1.3 per cent in 2019, from 1.9 per cent to 1.3 per cent in 2020, and from 2 per cent to 1.5 per cent in 2021, before expanding by 1.6 per cent in 2022.
The Bank of England has already hiked its growth outlook to 1.8 per cent in 2018, up from 1.6 per cent previously.
John Hawksworth, chief economist at PwC, said that while the Chancellor will hold on to any borrowing boost ahead of Brexit uncertainties, he is expecting “more significant tax and spending announcements in the Budget in November”.