Market Insight - December 2018 / January 2019
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Light at the end of the tunnel?

Better than expected economic news suggests that austerity may be coming to an end.

On Budget Day the Chancellor, Philip Hammond, was able to draw on several better-than-expected tax receipts to announce that austerity was “finally coming to an end”. The upgraded forecasts for growth and lower government spending meant that Mr Hammond could inject funding into the NHS, as well as bring forward increases to income tax thresholds. The decision to raise the Personal Allowance a year earlier than expected will boost disposable incomes to £12,500, and the Higher Rate Threshold to £50,000, all from April 2019. Good news for tax payers!

But the Chancellor’s third budget was also underpinned with the warning that should Brexit go wrong, the pain felt across the public sector will continue. So, what is the outlook for the future of the UK economy?

The Office for Budget Responsibility (OBR) have taken a more optimistic view of the UK economies potential, but not in the short-term. They said the big picture was “a relatively stable, but unspectacular trajectory for economic growth”. It’s worth pointing out that their forecasts are based on a smooth exit from the EU.

Economic growth was revised down from 1.5% to 1.3% for 2018 due to Q1’s weak data. Yet because of the strong labour market, which is running out of spare capacity, the OBR assume that the economy will be able to sustain slightly higher growth over the next few years. Employment levels are expected to remain high, but this is due to the rise in the number of older people working. However, on a global scale, economic growth for the UK is quite weak and the forecasts show that this is unlikely to change anytime soon.

OBR Economic Forcasts

Source: OBR


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