UK economic growth has slowed over the past couple of years, but the latest news has been somewhat more positive on the back of a stronger global economy. The Office for Budget Responsibility (OBR) nudged up its 2018 GDP growth forecast from 1.4% to 1.5% to reflect this better international outlook, which is in line with our own latest growth projection for this year.
Looking further ahead, however, the OBR has not made any material changes to its growth projections, sticking to the downward revisions to productivity growth it made in its November forecasts. As a result, average UK growth is still expected to be only 1.4% over the next five years, well below its long-term historical average of just over 2% per annum.
The OBR therefore expects the UK to remain in the slow lane of global growth for some years to come. They are slightly more pessimistic here than we or most other forecasters including the Bank of England are about medium term UK growth prospects, although there is some merit in taking a relatively cautious approach to economic forecasting when it comes to financial planning, whether for the government or a business. This is particularly true given ongoing uncertainties around Brexit.
The OBR has also kept its inflation projections largely unchanged, still expecting this to fall from around 3% now back down to its 2% target rate over the next year. This will allow real wage growth to edge back into positive territory later this year, though it will remain modest by historical standards.
Comparison of key OBR forecasts in March 2018 and November 2017
