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Budget 2015: Oil price slump prompts UK growth upgrades

by: Dan Jones
  • 18/03/2015
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Lower inflation, driven by a fall in oil prices, has helped the Office for Budget Responsibility (OBR) upgrade UK growth forecasts for 2015 and 2016 and give the government room to move on near-term borrowing.

UK CPI inflation hit a record low of 0.3% in January, driven by an oil price which has more than halved since last summer.

The OBR today revised down its forecast for inflation this year to just 0.2%, and also scaled back forecasts for the next four years, though Osborne confirmed the Bank of England’s inflation target remains at 2%.

Lower inflation is thought to be behind today’s decision by the OBR to revise up its 2015 growth forecast from 2.4% in December’s Autumn Statement to 2.5% – but below the 2.6% figure some had predicted.

Growth is forecast to come in at 2.3% for the subsequent three years, in line with expectations, and compared with December forecasts of 2.2% for 2016, 2.4% for 2017 and 2.3% for 2018.

GDP will then rise 2.4% in 2019, up from the 2.3% predicted in December.

Chancellor George Osborne said the upwards revisions came despite the OBR having “again revised down the growth of the world economy, the growth of world trade, and the prospects for the eurozone”.

The growth figures remain below the Bank of England’s GDP forecasts, which as of its February inflation report stood at 2.9% for 2015, 2.9% for 2016 and 2.7% for 2017.

Last year’s growth figure was also revised down, from December’s 3% prediction to a confirmed level of 2.6%.

Borrowing

The OBR has also made slight improvements to borrowing forecasts, aided by the improvements to near-term growth forecasts and lower payments on its index-linked debt and certain inflation-linked benefits.

Borrowing for 2014/15 will now stand at £90.2bn, down from the £91bn December forecast.

“Borrowing is down in every year of the forecast,” Osborne said.

However, the £23bn surplus predicted for 2019/20 last December has been cut to just £7bn in the latest forecast.

The OBR said debt as a share of GDP, meanwhile, will fall to 80.2% in 2015/16, down from a December forecast of 81.1% – and below the 80.4% figure for 2014/15.

Figures for the next four years have also been revised down. By 2019/20 net debt relative to GDP will stand at 71.6%, down from 72.8% predicted in the Autumn Statement, according to the OBR.

Interest charges on gilts are now expected to be £35bn lower than just a few months ago as a result, Osborne said.

The Chancellor also said the government will sell £9bn more Lloyds shares this year, as it seeks to return the bank to private ownership. It will also sell £13bn of mortgage assets from Northern Rock and Bradford & Bingley.

The combination of lower welfare payments, lower interest payments and the sale of bank assets will be used to pay down the national debt, Osborne added.

For all other coverage of the 2015 Budget, click HERE.

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