Economic and fiscal outlook March 2014

In the final quarter of 2013, GDP growth matched the December forecast, inflation fell back to target and unemployment dropped more quickly than expected.

However productivity and wage growth remained disappointing.

Consumer spending, supported by a falling saving ratio, has been the biggest driver of recent growth, while the latest data suggest business investment is recovering.

Housing market indicators have picked up sharply but export performance remains disappointing.

Given the momentum the GDP forecast has been revised up slightly to 2.7 per cent in 2014 and 2.3 per cent in 2015.

The outlook for productivity growth, which underpins income growth and the sustainability of the recovery, remains the key uncertainty.

Inflation is expected to remain close to target and unemployment to continue falling though at a slower pace.

Combining a narrower output gap with the slightly stronger GDP growth forecast it is now expected that the economy return to normal capacity by mid-2018.

Public sector net borrowing (PSNB) - the gap between what the Government spends and raises in revenue - is expected to be GBP3.4 billion lower than the December forecast. Borrowing is forecast to fall by a further GBP12.4 billion in 2014-15 moving below GBP100 billion for the first time in six years.

The largest drivers to the downward revisions being an upward revision to stamp duty receipts and downward revision to debt interest costs.

A number of budget measures have markedly different implications for revenue.

These include: the pensions withdrawals measure; voluntary NICs; the temporary annual investment allowance increase; and accelerated payments related to tax avoidance