Philip Hammond is expected to deliver a fairly positive update on the economy this lunchtime in what has been promised to a be short and snappy affair in his inaugural Spring Statement. Back in 2016 the Chancellor took the unexpected step of announcing that the following Spring Budget would be his last, and starting in 2018 the event would be reduced to simply a summary of the state of the economy and public finances, with the Autumn Budget becoming the main event for fiscal policy changes.
Economic projections to be revised higher
The overall tone will likely be upbeat with small upwards revisions seen to growth whilst Hammond will no doubt revel in announcing that for the first time since the financial crisis the government will not need to borrow to cover its day-to-day spending this year with the current budget deficit being eliminated. However, despite these positive developments, is unlikely that the Chancellor will be too bullish in his assessment of the economy, with calls from Labour as well as some Tories to use the extra cash from tax receipts to ease the spending squeeze likely to fall on deaf ears.
Rise in productivity just a blip?
One important aspect of the speech to focus on will be the latest productivity growth prospects from the Office for Budget Responsibility (OBR), which cut its forecasts in this area sharply back in November. The recovery from the financial crisis has seen something of a productivity conundrum arise with many economists at a loss to explain the sluggish growth which has seen the past decade believed to be the worst in terms of gains in output per worker since the 1820s.
However, recent data from the Office for National Statistics (ONS) recorded a strong rise in this metric in the second half of last year, but the OBR is seen as unlikely to herald this as a sustainable pick-up and probably describe the increase as nothing more than a blip. This is largely due to the fact that much of the improvement seen in productivity was a decline in hours worked by full-time employees and therefore is not even really a positive development let alone a major long-term turning point.