Box sets » Economic and fiscal outlook - March 2016
The path of productivity growth is a key driver of GDP growth in our forecast and is also one of the most uncertain judgements. In March 2016, given persistent weakness in outturn data, we revised down our forecast for productivity growth. But this issue was not specific to the UK, with productivity having disappointed in many other major advanced economies. This box compared different vintages of UK and US productivity and potential output forecasts since 2010 to illustrate this point.
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 2016 Economic and Fiscal Outlook, we made a number of economy forecast adjustments to GDP, business investment, wage growth, inflation and the housing market.
The government consumption deflator measures the implied price of government services. International comparisons show that different methodologies for deriving the government consumption deflator affect the extent to which nominal changes are interpreted as driven by changes in prices as opposed to volumes. This box outlined how these methodologies affected government consumption compared to pre-recession averages for six leading industrial countries.
Our forecasts must be prepared on the basis of current government policy. Before the EU referendum, that policy was to remain in the EU, so that was the basis for our March 2016 forecast. While we made no assessment at that stage as to what the economic and fiscal impacts of Brexit might be, in every forecast we highlight particular risks and uncertainties around our central projections. This box discussed Brexit as a particular source of uncertainty, by highlighting some pieces of external analysis which showed a wide range of views as to the possible impacts on trade, productivity and GDP growth.
Our March 2016 Economic and fiscal outlook forecast was affected by an unusual quarterly profile of GDP growth on the non-seasonally adjusted measure that the Office for National Statistics uses as the denominator in fiscal measures. This box outlined that unusual pattern, how we had factored it into our forecast and the effects it had had on the profile of the debt-to-GDP ratio.
In our November 2015 forecast, we anticipated the effect on the public finances of the ONS decision to reclassify private registered providers of social housing in England. This box outlined the policy measures which affect our forecast, the effect on the public finances and changes in these forecasts since November.
Business rates are a major source of locally-raised finance used to fund locally-administered spending. The Government announced in Autumn Statement 2015 that it would let English local authorities retain 100 per cent of business rates by the end of the Parliament. This box outlined the change in local government financing arrangements and the responsibilities that might be devolved, as well as how these changes would affect our forecast.
Since our March 2014 Economic and fiscal outlook, our debt interest spending forecast was revised down significantly as market expectations of the interest rates at which the Government can borrow and service its debt moved progressively lower and as inflation fell. This box explained some possible factors that could have caused market expectations of interest rates to rise and the effect on the fiscal position of a sudden increase in interest rates.