Economic update

Mr Hammond came under pressure ahead of the Spring Statement to loosen the purse strings, but he chose to announce no new spending measures or tax changes. If these are to come, they will be in the Autumn Budget, the sole ‘fiscal event’ of the year. Meanwhile the focus of the Spring Statement was on the economy and the public sector’s finances.

In the November 2017 Budget, the OBR projected a government deficit of £49.9 billion for 2017/18, £4.1 billion higher than in 2016/17. Wind forward four months to March 2018 and the OBR now projects that the current year’s deficit calculation will be £45.2 billion.This £4.7 billion drop in deficit from November’s figure is primarily due to marginally higher than expected tax receipts. In particular, the all-important month of January produced a £10 billion surplus.

The improvements to the OBR’s government borrowing projections were not as large as some pundits had expected, helping to justify Mr Hammond’s caution. As he (and the OBR) are only too aware, just as the government’s fortunes have improved since last November, they could also deteriorate by the 2018 Budget this autumn. A do-nothing Spring Statement has the benefit of keeping the financial powder dry for the issues still to come.

UK economic growth remains disappointing, even if the OBR has lifted its forecasts marginally for the next few years - 2018 is now forecast to produce 1.5% growth. The Brexit negotiations continue to be a major unknown, with the OBR noting, “the absence of a meaningful basis to predict the precise outcome of the current negotiations with the EU”.Inflation, at 3.0% in January, is above the government’s target, adding to the government’s borrowing costs – over a quarter of government bonds are index-linked. Conventional interest rates are also on the rise, with the markets expecting another 0.25% increase to the base rate in May.

With such uncertainties, Mr Hammond’s strategy of one Budget a year and a thin Spring Statement is arguably wise.