Old Mutual Global Investors head of UK equities Richard Buxton has warned that the Government faces challenges if its ‘above consensus’ forecasts announced in yesterday’s Autumn Statement don’t play out.
“Should economic growth indeed disappoint relative to the OBR’s forecasts, it is of course inevitable that the budget deficit will fail to come down as quickly as hoped, which in turn hardly paints a rosy picture of the outlook for sterling,” Buxton says.
In this week’s Autumn Statement, Chancellor Philip Hammond announced the OBR expects annual GDP growth from 2017 to 2021 to be 1.4 per cent, 1.7 per cent, 2.1 per cent, 2.1 per cent and 2 per cent respectively.
The Government plans to reduce the UK’s budget deficit to 2 per cent of GDP by 2020.
Buxton says the forecasts, which he believes are “somewhat above consensus”, suggest the OBR expects sentiment to become more buoyant following the triggering of Article 50 in the second half of 2017.
“The question is, why would growth slow so much in 2017, then inexplicably pick up in subsequent years?”
“In my view, substantial risks to the UK’s economy remain, bringing into question an implicit suggestion that animal spirits will suddenly rise in the years ahead.
“As it stands, the country continues to face the same uncertainties that triggered such a sharp decline in the value of sterling in the aftermath of the EU referendum vote.”