UK economic growth
The UK is forecast to grow faster than any other G7 economy in 2016, but the global economic outlook has declined since the 2015 Spending Review and Autumn Statement.
The International Monetary Fund (IMF) has reduced its global growth prediction to 3.4 per cent in 2016, whilst the Organisation for Economic Cooperation and Development (OECD) forecasts 3.0 per cent growth this year.
Productivity growth was weaker than anticipated in 2015, but it is expected to grow by 1.0 per cent in 2016 and 1.7 per cent in 2017, rising to 2.0 per cent for the remainder of the forecast period.
The Office for Budget Responsibility (OBR) now forecasts GDP growth of 2.0 per cent in 2016, 2.2 per cent in 2017, and 2.1 per cent in each of the following three years.
Devolution and investment
Devolution of powers was a strong theme of the latest budget and the government’s “devolution revolution” will give local leaders across the country new powers and reward them for driving growth. The government is set to agree mayoral devolution deals with the West of England, East Anglia and Greater Lincolnshire, as well as Greater Manchester and Liverpool City region.
The Northern Powerhouse remains high on Osborne’s agenda, with the government “giving the go ahead” to High Speed 3 between Leeds and Manchester, investing £161 million to transform the M62, and £75 million to improve road links across the North. London’s infrastructure will also be given a boost with the development of Crossrail 2 – a project to which the government has pledged £80 million.
Supporting British businesses
In his speech to Parliament, Osborne said: “This is a budget that backs small business” – aiming to drive productivity growth and create employment opportunities.
The government has pledged to cut the rate of corporation tax to 17 per cent in 2020, which will benefit more than 1 million businesses. In addition, the Capital Gains Tax will be reduced from 28 per cent to 20 per cent from April this year.
Business rates for all properties in England will also be cut, with 600,000 small firms paying no rates at all.
Osborne also announced £700 million of new funding to protect homes and businesses from flood risk.
International trade and export outlook
The outlook for world trade continues to be revised down and as a result of lower global growth the OBR has revised down their outlook for UK export markets.
Since 2010, aerospace production has grown by almost 30 per cent and car production has increased by over 60 per cent. In fact, last year car manufacturing exports reached a record high.
With the EU referendum firmly set for 23 June 2016, the current government position is “to recommend that Britain remains in a reformed EU.” With this in mind, the Treasury suggested that the UK’s “full access to the single market, through its EU membership, clearly increases the openness of the British economy” and that a vote to leave would create economic uncertainty. The Treasury will set out a comprehensive assessment of the costs and benefits of membership of a reformed EU in the near future.
The 2016 Budget also outlined plans for a levy on soft drinks with added sugar; funding for sport in primary schools; plans to make every school an academy by 2022; and a new Lifetime ISA to save for retirement or to buy your first home. You can read a summary of the key announcements here.
Read the 2016 Budget in full here.