‘Tigger’ Philip Hammond bounces back – but long-term outlook is gloomy | Larry Elliott | UK news

Call me Tigger. That was Philip Hammond’s message to MPs in his spring statement as he sought to shed his reputation for being the cabinet’s Eeyore, always seeing the cloud to every silver lining.

Growth had been revised up by the independent Office for Budget Responsibility, Hammond said, while the budget deficit had been revised down. Manufacturing was enjoying its longest unbroken run of growth in 50 years. Before too long, wages would start rising faster than prices.

The real Eeyores, Hammond said, were on the Labour benches as he boasted of what good shape the economy was in as Brexit approaches. Assuming there are no hiccups, spending on public services will be increased in the autumn budget.

The OBR, the independent body set up in 2010 to provide independent economic forecasts for the government, saw less reason to be so breezily optimistic.

After a slightly better performance in 2017 than it had expected when it last reported in November, the OBR now thinks growth will be 1.5% in 2018, up from the 1.4% previously predicted. The economy is being helped by stronger global growth but held back by the government’s benefits freeze.

Like the Treasury and the Bank of England, the OBR has been surprised at the performance of the economy since the Brexit referendum in June 2016. “The vote to leave the European Union appears to have slowed the economy, but by less than we expected immediately after the referendum – thanks in part to the willingness of consumers to maintain spending by reducing their saving.”

Thereafter the OBR has kept its growth forecasts unchanged at 1.3% for 2019 and 2020, and cut them by 0.1 points in each of 2021 and 2022 to 1.4% and 1.5% respectively. Only from 2021 does an easing of austerity boost activity and overall growth will average 1.4% a year over the next half a decade, unchanged since November.

Similarly, while Hammond was able to announce that the OBR had cut its estimate of government borrowing in the current 2017/18 financial year by almost £5bn to just over £45bn, this was the result of a cyclical rather than a structural improvement in the state of the public finances.

The gist of the 243-page OBR economic and fiscal outlook is that nothing has really changed since it last reported less than four months ago. Back then, the big news was that the OBR had slashed its estimate of the UK’s long-term growth potential as a result of the flat-lining of productivity since the financial crisis a decade ago.

The news on productivity – the amount of output per hour worked – was better in the second half of 2017, with quarterly growth of 0.9% and 0.8% in the third and fourth quarters, but the OBR will want to see more evidence of a sustained pick-up before changing its mind. Productivity grew faster in late 2017 because of a fall in hours worked, the OBR noted, and when something similar happened in 2011 the effect was short-lived.

Since he became chancellor in the summer of 2016, Hammond has sought to improve the UK’s productivity record through a range of measures including higher infrastructure spending, extra investment in research and development and a greater emphasis on vocational training.

But judging by its forecasts, the OBR thinks it will take many years for things to get better. It believes that the financial crisis and the deep recession that followed dealt a severe and lasting blow to Britain’s long-term growth rate, reducing it from around 2.25% a year to 1.5% a year.

Paul Johnson, director of the Institute for Fiscal Studies, summed up the OBR report this way: “Not that much to be Tigger-ish about here. Growth forecasts dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with most of the rest of the world.”

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