The key chart
(Source: OBR; CMMP)
The key message
The OBR’s latest “Economic and fiscal outlook” (published 15 March 2023) presents a brighter outlook for the UK economic and fiscal outlook – a shorter and shallower downturn, higher medium term output and lower budget deficits and public debt.
Viewed from our preferred sector balances perspective, however, the forecasts indicate that fundamental challenges and economic imbalances remain.
According to the OBR….
While the Chancellor and other fiscal hawks celebrate lower deficits, the UK’s household (HH) sector will move from a large surplus to a balance as savings are drawn down to support consumption during the squeeze on real disposable incomes. (This means no net HH saving or borrowing over a sustained period – really??). Private consumption will still fall in 2023, however (by 0.8%), as lower savings will only partially offset the decline in incomes.
Corporate (NFC) investment will disappoint too. The NFC sector moves from a modest surplus (ie, disinvestment) to balance as investment picks up, but only gradually.
With the private sector running small surpluses (as opposed to the small deficits forecast in November 2022), borrowing from the rest of the world remains sizeable and persistent.
In short, the OBR expects a return to the pre-pandemic world of economic imbalances. The good news, for what it’s worth, is that the private sector is forecast to run a small surplus rather than a deficit as before (and as predicted in November 2022). The bad news is that the UK economy is forecast to remain heavily dependent on net borrowing from abroad. A familiar story…
Six charts that matter
(Source: OBR; CMMP)
Don’t forget the context (see chart above)!
The counterpart to the large government debt built up during the pandemic (-26% GDP, June 2020) was large financial surpluses for UK households (+18% GDP, June 2020) and, to a lesser extent, UK corporations (+7% GDP).
From here, and according to the OBR….
(Source: OBR; CMMP)
(Source: OBR; CMMP)
(Source: OBR; CMMP)
(Source: OBR; CMMP)
In short, the OBR expects a return to the pre-pandemic world of economic imbalances (see chart below).
(Source: OBR; CMMP)
The good news, for what it’s worth, is that the private sector is forecast to run a small surplus rather than a deficit as before (and as predicted in the previous OBR forecasts).
The bad news is that the UK economy is forecast to remain heavily dependent on net borrowing from abroad. A familiar story…
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.