47881_Budget_2015_Web_Accessible

The UK economy and public financesThe government’s long-term economic plan has restored fiscal credibility, allowing activistmonetary policy to support the economy. This has been supported by far reaching reform of thefinancial system and a comprehensive package of structural reforms to back business and raiseproductivity growth. As the recovery has become established, growth has been broadly balancedacross sectors, and GDP in 2014 was 2.6% higher than in 2013, the strongest annual growthsince 2007. However, external risks facing the UK have increased since Autumn Statement 2014,with continuing instability in the euro area and Ukraine.At the end of 2014, employment was at its highest ever level at 30.9 million, more than1 million above its pre-crisis peak, and up 1.85 million since the current government came topower. The employment rate for the three months to December 2014 was 73.2%, the jointhighest level since records began. Unemployment has fallen in every region since 2010, andover 2014, employment in the North East, North West and East Midlands grew faster than inLondon. At the end of 2014, there were more women in work than ever before.Earnings growth has been strengthening, with total pay up 2.1% in the three months toDecember 2014 compared to a year earlier. Inflation was 0.3% in January 2015, down from0.5% in December 2014. Low inflation in the UK has mostly been driven by global factors,notably the sharp fall in oil prices and the decline in food prices. Lower fuel and food prices arewelcome news for households, boosting real household incomes and helping family budgetsstretch further. The OBR forecasts imply that Real Household Disposable Income per capita is setto grow strongly every year for the rest of the decade. On average, households will be around£900 better off in 2015 than they were in 2010.The government has made significant progress in delivering fiscal consolidation. The latestdata from the IMF shows that the government reduced the structural deficit by more than halfbetween 2010 and 2013, a larger absolute reduction than any other country in the G7. Due tothe lower deficit and to the government’s planned sale of Lloyds Banking Group shares and assetsheld from the forced nationalisation of Northern Rock and Bradford & Bingley, debt as a share ofGDP is now forecast to start falling in 2015-16 – meeting the debt target set out in 2010.Economic forecastThe OBR has revised up its forecast for UK growth in 2015 from 2.4% to 2.5% and in 2016 from2.2% to 2.3%. The OBR forecasts growth of 2.3% in 2017, rising to 2.4% in 2019.The OBR has revised down its forecast for the unemployment rate in 2015 from 5.4% to 5.3%.The OBR forecasts unemployment of 5.2% in 2016 and 5.3% for the remainder of the forecastperiod. The OBR forecasts real terms growth in average earnings for all years of the forecast.The OBR forecasts business investment growth of 5.1% in 2015 and 7.5% in 2016.Fiscal forecastThe OBR forecasts that the government will meet its updated fiscal mandate in the target yearof 2017-18. The deficit continues to fall each year and borrowing is forecast to be lower in everyyear to 2018-19 than at Autumn Statement 2014. From its post-war peak of 10.2% of GDP in2009-10, public sector net borrowing as a share of GDP is forecast to have halved in 2014-15;to fall to 4.0% of GDP in 2015-16, the final year for which the government has set departmentalspending plans; and to reach a surplus of 0.2% of GDP in 2018-19, increasing to 0.3% in2019‐20 as a result of the government’s neutral spending assumption after 2017-18.2 Budget 2015