Budget 2017: Chancellor Philip Hammond rides growth wave to slash borrowing

Chancellor Philip Hammond surfed the wave of higher growth this year to cut £24 billion of the nation’s borrowing bill in Wednesday’s Budget.

The sharp upgrades from the Office for Budget Responsibility (OBR) to the UK’s economic performance for this year — reflecting surprise strength since the Brexit vote — echo more optimistic growth forecasts from the Bank of England last month.

The Treasury’s fiscal watchdog now predicts growth of 2% this year, compared with only 1.4% in November’s pre-Budget statement.

But in 2018 it forecasts a slower 1.6% advance than the 1.7% pencilled in four months ago, and a less rapid expansion of 1.7% in 2019, the year when the UK will make its historic exit from the European Union.

The OBR predicts the economy’s overall size will be “broadly the same” at the end of its forecast period, Hammond said. But the resultant boost to the public finances from higher tax receipts this year means the UK deficit will come in at £51.7 billion in the present financial year — £16.5 billion lower than the £68.2 billion it predicted in November.

However, after that improvements are much more slight, meaning that, cumulatively, public borrowing will be £24 billion lower over the six years to 2021-22.

Hammond also has £26 billion in headroom to hit his much looser fiscal target of cutting the structural deficit — the part impervious to the ups and downs of the economy — to below 2% of GDP in 2020-21.

He abandoned his predecessor George Osborne’s ambitions of running an overall surplus by the end of the Parliament last autumn.

One economist described the latest set of OBR forecasts as a “cop out” amid huge looming uncertainty over Article 50 Brexit negotiations with the EU. He said: “They’ve done the same cop out on the economic forecast as many others — ‘we were right about a Brexit hit, but just give it a bit more time’.”

Although the Chancellor warned that the UK’s debt pile was “still too high” and pledged to “continue the work of living within our means”, the improved short-term growth prospects mean the UK’s debt pile will peak at 88.8% of GDP next year — compared with 90.2% four months ago.

The OBR also forecasts the national debt will fall to 79.8% in 2021-22, compared with its previous forecast of 81.6%.