Try as he might to sugar the pill, the Chancellor's stamp duty cut and spending slugs for the NHS and housing do little to disguise the grim reality of the OBR's forecasts for productivity and growth. As the OBR bluntly puts it:
We have lowered our real GDP forecast in every year. We now expect growth to average 1.4 per cent a year over the next five years, slowing a little over the next two (as public
spending cuts and Brexit-related uncertainty weigh on the economy) and picking up modestly thereafter as productivity growth quickens. The main reason for lowering our GDP forecast since March is a significant downward revision to potential productivity growth, reflecting a reassessment of the post-crisis weakness and the hypotheses to explain it.
Britain is now starting to look distinctly Italian. It has no obvious growth model, at least for the foreseeable future. Higher inflation and stagnant wages have cut household consumption, yet the devaluation of sterling has not fed through into higher exports. Business investment remains weak, and although the Chancellor has eased the fiscal path for government spending in the immediate period ahead, the public sector continues to retrench. There is thus no significant growth motor. As the OBR spells out:
We...expect real consumption growth to remain subdued as the past depreciation of sterling continues to boost inflation, weighing on household real incomes, and as household saving begins to stabilise after the drop over the past two years. Cuts in public spending should also weigh on GDP growth. Business investment growth is expected to remain subdued in the face of Brexit-related uncertainty, after the modest growth experienced since the referendum. This is despite the current investment-friendly conditions created by, for example, historically low borrowing costs and improved profitability in the export and import-competing sectors after the fall in sterling.
In the 1990s, the export of high-value goods and services and strong household income growth underpinned recovery and then expansion. Productivity grew. In 2017/18, a decade on from the financial crisis, Britain is about to erect trade barriers to its biggest export markets, while households continue to struggle with a sustained squeeze on their living standards. If one thing is now certain, it is that "Global Britain" will be a much smaller economy in the future than once we thought.
A new industrial strategy for Britain is being published imminently. It has a lot riding on it.