UK fiscal headwind still strong

Ongoing fiscal austerity will continue to constrain overall economic growth. While the Chancellor's recent Autumn Statement modestly softened the near-term impact of the cut backs - increasing spending and cutting borrowing relative to the projections in the July Budget - the big picture remains that the bulk of the structural consolidation still lies ahead. 

Indeed, the fiscal headwind over the next few years through to 2020-21 is set to be larger than that seen to date since 2010. Latest forecasts also project public spending as a share of GDP dropping to just 36.4% by 2020-21, a low previously only seen briefly in recent history in the late 1950s and late 1990s. The scale of the coming cuts continues to raise doubts about whether they will be achieved. Risks thus remain either of slippage, or of an outsized adverse impact on the economy.