|Some thoughts on The Autumn Statement
As was widely expected, the Chancellor’s tax and spending measures, announced in the Autumn Statement today, were fiscally neutral. There weren’t many surprises, as most of the measures were either leaked or announced beforehand, so our main focus in this comment is the Office for Budget Responsibility’s (OBR) economic and fiscal forecasts, which are attached, and how they compare with our own outlook of the UK economy.
The OBR increased their GDP forecasts for 2013 and 2014 from 0.6% and 1.8% to 1.4% and 2.4% respectively. We maintain our more conservative GDP forecasts of 1.1% for 2013 and 1.7% for 2014. Like us, the OBR see private spending leading growth and an accompanying fall in household saving. The OBR also forecast that exports will grow by 4% in 2014, our view is that Europe, the UK’s main trading partner, will remain weak in 2014 due to ongoing austerity measures in many countries and this will weigh down on trade.
The OBR also forecasts household debt will rise to around 160% of income by 2018 from around 140% currently. In our view, more borrowing by households in the backdrop of loose monetary policy and rising house prices will be a key risk to the UK in the medium-term.
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