Martin Beck, chief economic advisor to the EY ITEM Club, says: “Jeremy Hunt’s second fiscal event as Chancellor proved less dramatic, but much more upbeat in tone, than its predecessor. As a result, the Chancellor is expected to continue meeting his fiscal rules, although the debt goal only marginally. The OBR thinks the Budget’s measures will boost the economy’s potential, although a steep fall in energy futures prices and higher migration also contribute towards a more optimistic long-term outlook.And the overall tax burden is still headed for a 70-year high, aided by the continued cash freeze in income tax thresholds. The new investment incentive is time limited, while the corporate tax rise is permanent. That said, allowing businesses to fully expense investment against taxable profits may only mitigate the impact of other incoming changes – April’s rise in corporation tax and the end of the super-deduction tax break. Supply-side measures around boosting investment and encouraging more people into the workforce should be positive for growth.This will reduce inflation over the next few months and avoid what would have been another headwind to consumers. A lower trajectory for energy prices has helped on both fronts and given the Chancellor leeway to maintain the energy price guarantee at its current level. The OBR has also reined back on its previous prediction of a prolonged downturn, with the economy now expected to avoid recession. Those forecasts paint a brighter near-term picture for the public finances, with forecast borrowing this year and next £33bn lower than only three months ago, despite the fiscal cost of Budget measures.

And with well-publicised issues in the US banking sector presenting a new source of uncertainty, some unexpected caution may need to be attached to the OBR’s less downbeat forecasts. However, the Chancellor’s decision to stick with April’s substantial rise in corporation tax and the ongoing freeze in income tax thresholds means fiscal headwinds have far from gone away.

The net fiscal loosening announced in today’s Budget will likely improve the short and long-term economic outlook.

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