23rd November 2017.
UK Growth Outlook Slashed
Britain’s growth outlook has been slashed as low productivity growth and miserly pay rises continue, forcing the Chancellor to plan for extra borrowing in the years ahead.
A new economic forecast by the Office for Budget Responsibility (OBR) has found that the economy will grow by an average of just 1.4 per cent across the next five years. This is a gloomier outlook than the forecast by the OBR in March.
Officials had hoped that productivity growth would bounce back to its pre-crisis levels. Instead it has remained sluggish and growing at a pace that was typically seen before the industrial revolution.
“Productivity growth has been far weaker since the financial crisis than it was for decades beforehand” said the OBR’s boss Robert Chote. In March he predicted productivity growth would return to 1.8 per cent per year, but he has cut that to 1.2 per cent now.
The new forecast also adds £90.5 billion to the Government’s borrowing by 2021-22. The Chancellor said he wants to address this severe problem, expanding the National Productivity Investment Fund from £23 billion to £31 billion, allocating £2.3 billion more to research and development spending, increasing R&D tax credits, spending more money on digital connectivity, and on skills such as maths education.
“We have some of the world’s best companies. And a commanding position in a raft of tech and digital industries that will form the backbone of the global economy of the future,” the Chancellor said. “Those who underestimate Britain, do so at their peril.”
OBR officials doubt Hammond’s reach, and believe his policies will only help productivity growth in the short term.
British economist Sir Charlie Bean sees elements like improving skills in the workplace as enhancing productivity levels, but believes it could take a long time for effects to be felt.
Sir Bean remains optimistic about the future of the UK economy, and suggests embracing new technologies such as Artificial Intelligence could help productivity growth in the long term.
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