- Borrowing remains on track to come in some way below the OBR’s forecast for 2021-2022. With the pace of the recovery continuing to outperform the OBR’s cautious forecast, revenues and spending are both outperforming.
- Key to any changes in the fiscal stance in the Autumn Budget will be the OBR’s view on medium-term prospects. The EY ITEM Club is optimistic that the OBR will decide it has been too gloomy about the extent of long-term economic impact of the pandemic. In that case, resulting forecast revisions should give the Chancellor more policy flexibility.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Public sector net borrowing (excluding public sector banks) came in at £22.8bn in June, £5.5bn lower than a year earlier. This meant that borrowing over the first three months of fiscal year 2021-2022 totalled £69.5bn, £49.8bn down on last year and well below the £92.7bn forecast by the Office for Budget Responsibility (OBR). Both receipts and spending continue to perform better than the OBR anticipated, though in the case of the latter that is largely due to the timing of EU ‘divorce payments’.
“The EY ITEM Club expects this pattern to continue over the remainder of fiscal year 2021-2022. The recovery should continue to run at a much faster pace than the OBR’s March forecast anticipated, boosting tax receipts and reducing the cost of government support schemes. Borrowing should come in well below the OBR’s forecast of £233.9bn.
“But, in policy terms, it is the OBR’s medium-term forecast that is most important. This forecast will be heavily influenced by the OBR’s view of the degree of ‘scarring’ the economy has experienced during the pandemic. Its current view that there will be a long-term impact of 3% of GDP looks increasingly pessimistic. Should the OBR scale back this estimate, then its forecast revisions could give the Chancellor more policy flexibility in this autumn’s Budget.”