The OBR is still too gloomy

Following November’s Autumn Budget, we argued that the Office for Budget Responsibility (OBR) had become too pessimistic about the outlook for economic growth. Although the economy has performed better than expected, while the public finances have improved at a faster rate, the OBR has maintained its gloomy outlook. While there are some good reasons to take the strong recent productivity outturns with a pinch of salt, we continue to expect productivity growth to pick up faster and further than the OBR expects. We also don’t share the view that the economy is operating above its potential level. And the OBR’s forecasts for consumer spending and investment this year and next look particularly weak. However, the key question is whether the OBR ends up changing its tune in time for the Chancellor to provide some giveaways at the Budget in November.