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.

PROMOTED VIDEO
News
peopleStella McCartney apologises over controversial Instagram picture
Voices
voices
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
Sport
Ronaldinho signs the t-shirt of a pitch invader
footballProof they are getting bolder
News
William Hague
people... when he called Hague the county's greatest
Extras
indybestKeep extra warm this year with our 10 best bedspreads
News
ebooksAn unforgettable anthology of contemporary reportage
News
people
Voices
voicesBy the man who has
News
people... and stop them from attacking people
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Sport
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
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

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?