Going into this year’s budget (the last in spring), the headlines were far from inspiring, with "the most boring budget ever" seeming to be the consensus view. Philip Hammond certainly used the opportunity to create a Brexit contingency fund rather than boost spending in areas such as the NHS.
Positive outlook for the UK economy
From a wider economic perspective, there was positive news with the Office for Budget Responsibility (OBR) now forecasting the economy to grow by 2%, up from its previous forecast of 1.4%. However, growth is then expected to slow to 1.6% the following year, before gradually accelerating to 2% by 2021.
The OBR also expects government borrowing for 2016-17 to be £51.7bn - a fall of £16.4bn from its November forecast and £4bn lower than the 2016 Budget figure. By 2021-22 the deficit is forecast to fall to £16.8bn.
Employment growing, but increased insurance on self-employed
UK employment also looks good. It is expected to grow every year with a further 650,000 people in work by 2021. At some point, workers would want to see the full employment situation reflected in higher wages.
The most contentious aspect of the budget was surely the decision to increase National Insurance on nearly 2.5m self-employed workers. This was at odds to one of David Cameron’s central pledges in the 2015 Conservative manifesto.
Inflation peaking, but downhill from here
Inflation is likely to peak at 2.4% this year before falling to 2.3% in 2018 and 2% in 2019. The short spike clearly reflects the post Brexit vote fall in Sterling, but greater exports and translation gains have offset price increases. The recent pull back in energy prices will also help the data.
Focus on technology rather than Brexit
The austerity mantra is still very much in evidence, and rather than being completed, the UK is probably only still halfway through fiscal consolidation. Notably missing from the budget was any mention of the possible exit bill from the EU, which some estimate to be as high as €60 billion.
There was also relative lack of focus on Brexit, with the government choosing to state that it is not obsessed with the details of leaving the EU, but that it remains a good opportunity to focus the public’s mind on long-term technology changes and adding to the skill set of the workforce. Spending commitments included £270m to put the UK "at the forefront" of disruptive technologies including robotics, biotech and driverless vehicle systems and £200m to support local "full-fibre" broadband network projects that are designed to bring in further private sector investment.
Capital International Group