Budget: OBR ups UK economic growth forecasts for 2017, cuts 2018

UK economic growth this year is forecast to be faster than was predicted in the autumn, Chancellor Philip Hammond said in his Spring Budget on Wednesday.

The Office for Budget Responsibility also slashed its deficit forecasts for the forthcoming fiscal year but the improvement is not expected to last, with the Chancellor, as expected, refusing to increase borrowing and investment and continuing with a cautious balanced budget.

OBR upgraded its forecast for growth for 2017 to 2% from its previous 1.4% estimate at the time of November's autumn statement, Hammond told the House of Commons, however forecasts for 2018 were cut to 1.6% from 1.7% in November.

In 2019, OBR expected the economy to re-accelerate to 1.7%, followed by growth of 1.9% in 2020 and 2.0% for 2021.

Cutting £23.5bn from planned borrowing over the next five years, there was a large drop in the forecast public deficit for 2016-17 to £51.7bn from £68bn.

The OBR now forecast the 2016/17 deficit to be £51.7bn, £16.4bn lower than the previous £68.2bn previously forecast, before growing to £58.3bn in 2017/18.

From 2018/19 the deficit is forecast to then shrink to £40.8bn, then £21.4bn in 2019/20, £20.6bn in 2020/21, £16.8bn in 2012/22.

Public sector net borrowing forecast to fall from 3.8% of GDP last year to 2.6% this year, then 2.9%, 1.9%, 1% and 0.9% in subsequent years, reaching 0.7% in 2021-22.

Debt rose to 86.6% of GDP this year, but will fall to 79.8% by 2021-22.

Chancellor sets out that although borrowing is lower than forecast this year and next, Britain still has a debt of nearly £1.7trn.

As the Budget speech rolled on, gilt yields climbed higher, with a 10-year UK government bond moving to 1.22%.

In a quick take, PwC chief economist John Hawksworth said OBR had revised down borrowing more than expected this year, but otherwise said there was "no significant change" in the medium term picture.

Analysts Richard de Meo at Foenix Partners said the market's response to growth forecasts being revised up was perhaps diluted by the extent to which these exceed broader predictions, as for example the OECD this week forecast UK GDP at 1.6% and S&P on Wednesday warned that it foresaw the economy slowing already this year.

"What shouldn’t be missed is the optimism of these upward revisions and widespread confidence in the underlying economy despite political turmoil. At this stage, sterling pricing does not reflect any such optimism."