UK GDP growth risks markdown in Budget

Fixed-Income-Portfolio-Coins-Pounds-Growth-700x450.jpgUK GDP growth may be revised down in the next Budget announcement as concerns over the global economy rise, argues one investment analyst.

UK GDP growth expectations from the Office for Budget Responsibility for 2016 were revised to 2.4 per cent in the Autumn Statement last year, up from the 2.3 per cent announced in the Budget earlier last year.

However, Hargreaves Lansdown senior analyst Laith Khalaf says growth forecasts could be marked down in the coming Budget on March 16.

He says: “Things look a little different today from the latest Autumn Statement. Concerns over the global economy have risen, coupled with more deflationary pressures as the oil price has gone down again.”

The OBR forecast also predicts GDP will grow by 2.5 per cent for 2017/18, and that it will fall back to 2.4 per cent in 2018/19 and 2.3 per cent in 2019/20.

Speaking at the Autumn Statement last year Osborne pledged that the UK would “grow faster than any other major economy in the world”.

Khalaf adds: “The growth in wages has also taken off and that is the important indicator, so if they say we were expecting wages to go up 2 or 3 per cent this year and suddenly it only goes up 1.5 per cent, that makes a big different to the income tax that Osborne has to play with.”

On the other hand, Khalaf says government borrowing costs are very low at the moment, which is good news for the Chancellor.

Khalaf says this has had a knock-on effect on demand and UK gilts are struggling to be sold at auction because of a lack of demand, compounded by the current downward pressure on sterling.

Demand for gilts sold at auction has fallen to the lowest level since 2009, according to the UK’s Debt Management Office.

In January, a sale of five-year gilts almost failed to get sold with a bid-to-cover ratio of just 1.07.

Added to this Bank of England data shows that in January, overseas investors sold £6.3bn of gilts, the largest month of net sales since March 2014.