Office for Budget Responsibility downgrades UK growth forecasts

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The new OBR is independent, and designed to replace the Treasury estimates, which were too easy for politicians to fiddle.

The crucial statistics are summarized on the table on page 15

budgetresponsibility.independent.gov.uk/d/pre_budget_forecast_140610.pdf

The change in the growth forecast utterly demolishes Labour's rhetoric - but did anyone seriously expect Britain to grow at 3.5% a year so soon?

However Labour have a small consolation prize - the forecasts for the deficits are slightly lower than was predicted at the time of the Budget. Data in the table on page 34.

MintHumbug

I think we can safely say that the OBR is truly independent! What they have said doesn't fit the narrative of any of the parties exactly. The Tories will point to the lower growth projections and higher structural deficit; Labour will point to the lower borrowing projections.

However you should note that the Budget was planned on the basis of a worst case scenario. The OBR figures are based on a central case scenario.

Ultimately I think concerns over sovereign debt made faster cuts and tax rises inevitable - though perhaps not deeper ones.

Europe's economies are in the toilet, and that won't help us with growth either, as they are our main export market.

Riven No. I think everyone thought/thinks that the original growth forecast for next year was just unrealistic, and that is even more so given the bad economies in the Eurozone.

Actually the employment forecasts seem far too optimistic to me - getting unemployment down to 6.3% in 2014, as the OBR suggests, seems wildly optimistic to me.

Remember this OBR report is just about Labour's plans.

I guess there will be a new OBR report after the Budget next week? I don't know how long it takes them to crunch the data.

MintHumbug Well, although Alistair Darling used some cautious assumptions, the actual growth envelopes were essentially set by politicians and not the Treasury. So the 3%-3.5% forecast was basically set by Labour, but the budget used the 3% number and not the 3.25% central projection.

Economists fall into two camps (at least). Those that think you spend your way out of a recession and pay the debts from the growth generated. And those that think you save/tax your way out of a recession and not have a big bill to pay at the end.

The Guardian (being left-wing) will probably support the former, as that was the Labour Party's preferred option until a few weeks ago.

We're not in a Depression and, unlike Roosevelt's 1930's America, we have a well-functioning, well-funded welfare state allowing all our people a reasonable standard of living and access to free healthcare even if they fall on hard times.

Just to add to MintHumbug's post - even most Keynesian (spend to get out of a recession) economists agree that you need to reduce debt in the high growth times in order to be able to increase debt in the a recession.

As the last government chose to increase debt from about 2005 - they removed the 'spend your way out of the recession' option - as detailed by MintHumbug

Just to add to MintHumbug's post - even most Keynesian (spend to get out of a recession) economists agree that you need to reduce debt in the high growth times in order to be able to increase debt in the a recession.

As the last government chose to increase debt from about 2005 - they removed the 'spend your way out of the recession' option - as detailed by MintHumbug

I posted on another thread about how this reporting is so strange.

So the media is reporting that things are bleak bleak and even more bleak again, because the growth forecast has been downgraded to 2.6%.

Might I just remind everyone that Annual growth rates averaged 2.68% between 1992-2007 according to the IMF.

And apparently these were the boom times. So what's going on here?

I wonder

The difference between Darling and this new forecast is pretty minimal, especially when you consider some of the countries we are apparently worse off than (according to the Tory press) are predicting a shrinking economy for next year.

I like your summary Mint, and I guess now it depends on your moral stance. Some, such as LFN, do not see a problem in sacrificing some people to unemployment (generally the lower paid workers), whereas I, think knowingly taking people into unemployment (especially when it is deliberately from that demographic) is really cruel and if it can be avoided, it really should be. Integrity and all that.

LadyBlaBla

Of course I don't want unemployment. It is absolutely horrible.

But it isn't the be all and end all. I think tackling long-term unemployment is much more important than short-term increases in unemployment.

You're caricaturing my views by suggesting I want people to lose their jobs. All I have said was that the best way to long-term full employment isn't via borrowing like mad, and creating a bloated public sector. It is through sound public finances leading to a thriving private sector. In creating those sound public finances, some jobs may have to go - and I am very sorry about that - but I believe it is more moral to look at the longer-term issues.

Borrowing is fundamentally a short-term solution - it passes all the problems, with interest (literally), to the next generation.

You see, one of my problems with your policies is the double edged dig that the Tories cannot resist.

So, with one hand they take away peoples' jobs, increasing unemployment completely beyond the control of the standard person, justifying as inevitable because of all this mess that you did notcause-- but never mind you will be so busy trying to survive we won't have much trouble from you , and then on the other hand, they stigmatise the lazy bastards who don't go out to work. It is crazy - can you not see that?

I will never understand this stance. It is so contradictory it hurts my head.

LadyBlaBla I don't think any Tory I can think of stigmatises people who don't work because they can't.

I don't think anyone looks down on anyone else who has lost their job. Everyone recognises what a tragedy that is, and wants them to get back to work as soon as possible.

However, people can work but who don't want to work are a very different kettle of fish.

One day you may come to realise that contrary to popular legend, Tories do not actually eat babies!

LadyBlaBlah - The government has said many times that they will seek to protect the vunerable during the period of cuts. They are not seeking to punish people.

However, it is an sad fact that the poor generally do worse in tough times and don't benefit proportionally in times of growth.

Gordon (no more boom or bust) Brown was fully aware of this - which is sadly ironic.

Re interest rates and the triple A rating - I thought our credit rating was what determined the interest rate payable on government bonds, not on the BoE's interest rate?

Vulnerable

"There's an article in todays Guardian by an economist saying that a harsh budget will send us into another recession and that a 2nd Great Depression was only avoided thorugh Govt spending.
When Roosevelt took over in 32(?) he used Govt money to spend his way out of the Depression."

Roosevelt was spending on major infrastructure projects though

He wasn't spending on massive public sector salaries and pensions, more quangos than you can shake a stick at, and a huge benefits bill.

Sort of like the difference between income and capital. You spend money on capital projects and hope they reap rewards. Spending on massive income type issues that are (a) never ending and (b) aren't going to stimulate growth simply won't help

DaisyMooSteiner The two rates are linked - not tightly, but not loosely either.

If the rate we pay to finance our debt rises too high, then BoE rates will also have to rise.

One of the reasons, though by all means not the only one, is because when the credit risk increases, the currency tends to weaken (because the balance of payments is usually adversely affected) - leading to inflation.

I am not an economist though, so the above might be complete nonsense!

why did it read in the papers like all doom and gloom then on newsnight looked like it was quite similar to labour's figures for projected deficit? wasn't paying too much attention but that jumped out at me.

I agree that we need some cutting and fundamental review; well done there BUT....
..i think it was Blancflower who said as much that he thinks the growth forecast revision is new Govt playing with the numbers....they have to be very careful that they dont talk things purely for political reasons down and create a double dip; like what Quattcentro and other said