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Chancellor’s Spring Statement Likely to be Cautious at Best

As Chancellor Phillip Hammond prepares to deliver his Spring statement to the House of Commons on Tuesday 13 March, experts at Colliers International are predicting that the Office for Budget Responsibility (OBR) will maintain its cautious outlook for the UK economy; and expect only a minor upward revision to its GDP forecast for 2018 (1.4 percent in the Autumn statement), despite the raft of positive economic announcements since November. 

“We expect the Spring statement to include a slight upward revision to the OBR’s GDP forecast,” says Oliver Kolodseike, Senior Property Economist at Colliers International. “Colliers’ more positive view is based on our belief that real wage growth will return and that business investment will strengthen later this year as more clarity on Brexit terms emerge.  We see only ‘upside’ risks to the forecast and as a result, we expect the UK economy to grow at a rate similar to, or above the 1.7 percent recorded in 2017.” 

As a result, Colliers International is expecting 2018 GDP growth to match or slightly exceed the 1.7 percent achieved in 2017 and attributes this positive outlook to a number of factors: 

  1. Real wage growth is set to return this year, maybe as early as in the second quarter. Consumer spending, which has long been the backstay of UK economic growth, suffered in 2017 as inflation outstripped wage growth. However, we believe that household spending will return to a stronger growth path this year. As a result of positive real wage growth and stronger than previously thought household spending, retail property could see some much-needed support later in 2018. 

  2. This year should bring more clarity on Brexit which, in turn, supports business investment. Leasing markets are broadly stable, even in London (the epi-centre of Brexit risk).  In fact, recent data for 2017 shows a decisive increase in European and North American businesses taking more space in London.

  3. Productivity growth was stronger in the second half of 2017 than anticipated by the OBR and a continuation of this trend would, consequently, have a positive impact on GDP growth. However, the OBR is unlikely to make revisions to the productivity forecast given that they had just made some major downwards adjustments to the outlook in November.