It seems that the OBR are indeed preparing to produce a much tougher Economic and Fiscal Outlook in readiness for the Budget on 16th March. This is what they say in their Commentary in response to the latest (somewhat better than November) public finance stats for December, published by ONS on Friday:
“Meeting our full-year forecast for 2015-16 – on the basis of the current public finances data prior to implementing the housing associations reclassification – would require borrowing to fall by £20.2 billion in the year as a whole. That implies an overall surplus of around £5½ billion over the next three months, compared with a £4 billion deficit in the same period last year.
Our forecast does assume stronger growth in receipts in the remainder of the year, particularly self-assessment (SA) income tax and stamp duty land tax (explained below). But considerable uncertainty nonetheless remains over prospects for the rest of the financial year.”
Let’s assume that there is break-even in the last 3 months of the year (roughly half way between last year and what is needed to meet the fiscal target), that would still leave around £4.5 billion shortfall, or about 0.25% of GDP.
And already, OBR tell us, public debt as a percentage of GDP has nudged upwards once more, at a time it should have been nudging down:
"PSND [public sector net debt] in December 2015 rose by 0.1 per cent of GDP relative to last year. The ONS has revised up its estimate of last month’s PSND-to-GDP ratio from 80.5 per cent in last month’s release to 80.9 per cent this month. That reflects revisions to nominal GDP that were contained in December’s Quarterly National Accounts release, published after our November forecast.”
As we have noted, in the EREP report on the UK economy in 2015 and in a recent post, in Q3 2015 nominal GDP rose by exactly the same annual percentage (2.1%) as real (allowing for inflation) GDP – a highly abnormal situation as nominal GDP is usually well ahead. With very low inflation, it seems that nominal GDP will stay considerably lower than the OBR had assumed (4%).
So if - as we may now take as likely - tax receipts are down on the OBR’s previous (November Economic and Fiscal Outlook) estimate, if deficit reduction is (once more) slower than intended, if nominal and real GDP this financial year are significantly below the previous assumption, if “growth” for 2016/17 needs to be adjusted down again… then as I said a week ago,
It will be a lot tougher than the Chancellor hoped, and many believed, back just a few weeks ago. And it seems likely we will all pay the price.