UK growth upgrade hits record

Britain’s growth prospects will be upgraded by the largest margin in more than a decade this week, as the Chancellor delivers his Autumn Statement against the brightest economic backdrop since the Coalition took power in 2010, reports The Telegraph.

The Office for Budget Responsibility (OBR) – the Government’s independent fiscal watchdog – is likely to upgrade its projection for UK growth in 2013 to 1.4pc, from a forecast of 0.6pc in March.

An upgrade of this size will represent the largest percentage point increase between the Budget and Autumn Statement since the OBR was formed in 2010, as well as the biggest revision in the Treasury’s archive, which dates back to 1997.

Growth for 2014 is also likely to be upgraded, to 2.3pc from 1.8pc.

A stronger growth trajectory means borrowing in the current financial year is expected to undershoot the OBR’s £120bn projection by around £12bn, even taking into account a shortfall from a tax evasion deal struck with Swiss authorities, which was predicted to generate £3.2bn but has so far yielded just £782m.

Britain’s brighter prospects could also see its credit rating upgraded before the end of the year. Standard & Poor’s (S&P), the only rating agency which still rates the UK at AAA, placed it on “negative outlook” last year, which means there is at least a one-in-three chance of a downgrade.

S&P said in April it would consider upgrading Britain’s outlook to “stable” if the amount of debt steadies and the economy “recover[s] more quickly and strongly than we currently anticipate”.

“We believe this Government has shown great resolve against much opposition and much criticism from powerful institutions like the International Monetary Fund and others,” Moritz Kraemer, chief rating officer at Standard & Poor’s, told The Sunday Telegraph.

He said Britain’s growth fundamentals were better than much of Europe’s, where the recent economic improvement was largely due to “reduced fiscal headwinds”.

“[In the UK] you have the feed-through into consumption and construction, so it’s not just something generated by the Government,” he said.

By contrast, Moody’s, which was the first rating agency to strip the UK of its AAA rating in February, said Britain’s

£1.2 trillion of debts meant a brighter growth story alone was not a “game-changer”.

“If we look at where the country’s debt burden is going to go and the speed of fiscal consolidation, the things that drove us to move the UK’s rating lower are still challenges it faces,” said Sarah Carlson, lead UK rating analyst at Moody’s.

Economists said it was likely there would be no big “giveaways” in this year’s Autumn Statement. “The Government has declared itself the victor in the austerity debate, so it would not make sense to deviate from such a supposedly successful path,” said Philip Rush, chief UK economist at Nomura.

However, the Chancellor is expected to honour pledges made at the Conservative and Liberal Democrat party conferences, including a commitment to scrap next September’s fuel duty rise and to introduce free school meals for primary school pupils.

He is also likely to move on energy bills, as first revealed in The Sunday Telegraph in the autumn. Energy companies expect that he will reduce the impact of green taxes in return for an immediate pledge that bills are reduced.

The Chancellor could reduce bills by doubling the time frame in which the targets must be met or moving some of the costs on to general taxation.