Commenting on the Autumn Statement, Deloitte Chief Economist, Ian Stewart, said:
Despite some headline grabbing measures the overall effect of today's announcements are tiny, with a net easing of policy next year, equivalent to 0.05% of GDP, and a modest tightening thereafter. No one will change their economic forecasts for the UK on the back of these numbers.
With the striking exception of the deficit the economic outlook for 2015 is almost exactly what the Coalition might have hoped for when it came to office in 2010: good growth, falling unemployment, low inflation and rising real incomes.
In 2015 the UK will be one of the fastest growing major economies in the EU; and the UK is likely to outpace three of the five "BRICS" economies – Brazil, Russia and South Africa. 2015 is likely to be the first year in which UK real earnings have risen in 6 years. Our survey work confirms that large businesses are in expansionary mode; we agree with the Office of Budget Responsibility that the next few years should see capital spending rising at the fastest rate since the Dot.com boom of the late 1990s. Crucially, with the OBR forecasting that inflation will stay below its 2.0% target for the next two years interest rates are set to remain low, and money cheap, for longer.
Despite disappointing growth in revenues today's deficit forecasts weren't quite as bad as some feared. But that shouldn't obscure the fact that we are only half way through a deficit reduction programme which stretches towards the end of the next Parliament. The IMF reckons that the UK deficit this year will be larger those in Greece, France, Italy or Ireland. The OBR forecasts it will take a tightening of fiscal policy and cuts in real government consumption spending for each of the next five years to get the budget back into surplus. The private sector will have to compensate for this and drive UK growth through the next Parliament.
The recession may be over, but much of the pain of deficit-reduction still lies ahead.
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