David Blanchflower: The OBR's credibility is in tatters

Chancellor is fiddling at the edges as the economy flatlines

It wasn't exactly an auspicious start to Budget Day.  Three pieces of evidence were published this morning, a few hours before the Chancellor stood up to speak, that shed light on how the austerity plans are working. They aren't. Cutting public spending and culling public sector jobs was supposed to lead to a resurgence of the private sector, it hasn't and was never going to. 

Click HERE to view 'Off target: The OBR's growth forecasts' graphic

What we heard from our part-time Chancellor in the afternoon in this fiscally neutral Budget, was more of the same, which will inevitably produce more of the same; little or no growth and rising unemployment especially among the young.

First, the public sector net borrowing hit a record for the month of February, rising to £15.18 billion, which was twice what economists had expected.  The lack of growth has meant that tax receipts are down 2.7% on a year ago, principally from declining income tax receipts. Government spending is up by 8.3% on a year ago, because of higher social benefits due to rising unemployment and government departments turning on the taps.

On top of that the Chancellor has claimed that a measure of the success of his policies has been the decline in the government's costs of borrowing. Following that reasoning, the fact that UK ten-year gilt yields have increased rapidly from 2% at the end of February to close to 2.4% during the month of March should be seen as an indictment of Osborne's policies by the markets.  He can't have it both ways.

Second, the minutes of the February MPC meeting showed that two members, David Miles and Adam Posen dissented from the majority view and voted for an additional £25 billion of monetary stimulus because of "the risk that persistently weak growth would damage the future supply capacity of the economy". Even the majority argued that there were significant risks to the downside.  The MPC's growth forecast produced in the February 2012 Inflation Report still looks wildly optimistic, and as with all of the last fourteen forecasts they have produced, will also be revised downwards.

Third, the Bank of England's Agents reported on the state of the economy. Their scores provide a useful indicator on where the economy is going and gave an early indicator of the recession to come in early 2008. Their report is consistent with the February PMIs, which suggest continued slowing of the economy. Employment intentions in the private sector remain flat. Credit conditions had tightened as a result of which the demand for loans remained fairly weak.  Most worryingly investment intentions were broadly flat.  

If we look back at the OBR's pre-Budget forecast in June 2010 growth in the UK was supposed to be driven by business investment, which was predicted to grow by 8% in 2011, 9.8% in 2012 and in double digits after that. It turns out that in 2011 it grew by 0.2% and in the new forecast the OBR expects investment to in 2012 to grow by only 0.7%.  But no worries, the OBR's forecast is for investment then to take off, growing by an unlikely 6.4% in 2013; 8.9% in 2014 before hitting double digits in 2015 and onwards.  Pigs might fly. 

It is unclear what the game changer is supposed to be that will boost business investment over the next two years when it hasn't done so over the last two. Just like the MPC, the OBR's forecasts have been wildly optimistic and have had to be revised down as the economy tanked. For example, the OBR's initial forecast for 2012 was 2.8% compared with 0.8% today.  The odds are that today's forecasts will be downgraded, given that the vast majority of spending cuts have yet to hit and there are continuing risks from the Euro area and high oil prices. This really is 'fingers crossed' economics from an OBR whose credibility is in tatters.   

This is a Budget that fiddled at the edges as the British economy flatlines. It remains unclear where growth is supposed to come from; more of the same simply doesn't do it.  Osborne still has no growth plan.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most