An important economic development in the run-up to our March 2015 Economic and fiscal outlook was the sharp drop in oil prices, which had fallen to less than half the $115-a-barrel peak that they had reached in June 2014. In this box we considered the channels along which those lower oil prices were likely to affect the UK economy. (See also Box 2.1 from that EFO for a discussion of the demand- and supply-side factors contributing to lower oil prices.)
In each Economic and fiscal outlook we publish a box that summarises the effects of the Government’s new policy measures on our economy forecast. These include the overall effect of the package of measures and any specific effects of individual measures that we deem to be sufficiently material to have wider indirect effects on the economy. In our March 2015 Economic and Fiscal Outlook, we made adjustments to nominal GDP, inflation and North sea production.
North sea oil and gas revenues have historically been volatile. This box showed how movements in revenues between the peaks and troughs since the early 1970s can be explained by drivers of taxable profits - the volume and price of production (which together provide a proxy for sales), the implied profit margin on those sales and the effective tax rate paid on those profits.
The Whole of Government Accounts (WGA) contains information on future fiscal liabilities that are relevant for our forecast. This box explained how we ensured that those future liabilities reported in the WGA were fully reflected in our forecasts, where those liabilities were expected to affect the public finances.
The world price of oil increased sharply in 2010, reflecting rising world demand and unrest in the Middle East and North Africa. This box explored the impact this had on our public finances forecast at the time, from higher North Sea oil and gas revenues to the second round effects stemming from higher inflation.