Chancellor Hammond was constrained by Office for Budget Responsibility (OBR) forecasts showing little carry-over of this year’s borrowing undershoot into future years. With no “back of the sofa” money to spend, Mr Hammond opted to raise taxes to plug the funding gap for social care and pay for additional business rates relief and higher spending on education / training. He did so by hiking national insurance contributions for the self-employed and – unexpectedly – slashing the recently-introduced dividend allowance.

The net effect of all government decisions – including the boost to spending from the recent cut in the personal injury discount rate – is to raise borrowing by £3.1 billion in 2017-18, with the amount falling in the subsequent two years and turning into a reduction of £1.0 billion in 2020-21. These numbers are rounding errors – £3.1 billion is equivalent to 0.15% of forecast nominal GDP in 2017-18.

Mr Hammond’s caution may partly reflect a desire to delay major initiatives until the new Autumn Budget. He may have greater room for manoeuvre by then, since borrowing may continue to undershoot the OBR’s forecast. A key assumption is that nominal GDP growth will fall from an estimated 4.2% in 2016-17 to 3.3% in 2017-18, contributing to a slower increase in tax receipts. However, nominal GDP rose by an annual 4.9% in the fourth quarter of 2016 and monetary trends suggest continued solid expansion in 2017 – see chart.

The new OBR numbers show an odd-looking profile for cyclically-adjusted net borrowing, which now rises from 2.6% of GDP in 2016-17 to 2.9% of GDP in 2017-18 before dropping sharply to 1.9% in 2018-19. The suggestion is that fiscal policy will be expansionary this year but will turn significantly contractionary next year, when the Brexit uncertainty drag on growth may reach a peak. This profile looks implausible: solid nominal GDP growth may result in stronger tax receipts and lower borrowing in 2017-18, while the Chancellor may choose to deliver a significant fiscal stimulus this autumn to cushion the Brexit effect.