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
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
News
people
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches