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
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
Sport
Rooney celebrates with striker-partner Radamel Falcao after the pair combine to put United ahead
footballManchester United vs Newcastle match report
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: 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...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all