George Osborne embarked on a mini world tour at the outset of his Budget speech. He took us via the United States, Japan, the eurozone and even tiny Cyprus before finally getting to the UK. The message was clear: this world economy is in turmoil and that is why Britain is in such a poor state.
The deterioration in the Office for Budget Responsibility's outlook since December is depressing. Three months ago the official forecaster expected the UK economy to grow by 1.2 per cent this year. Today it halved that forecast to 0.6 per cent. Growth for 2014 is expected to be 1.8 per cent, down from 2.1 per cent. The contrast with the OBR's expectations for the economy back in 2010 is even more depressing. Back then the forecaster expected the UK to be expanding at a rate of 3 per cent by now. The economy is today around 4.5 per cent smaller than the OBR anticipated three years ago. We are still 3 per cent below the peak in output achieved in the first quarter of 2008.
The OBR reiterated its view that weak exports, rather than the Coalition's austerity programmes, are the primary reason why the British economy has grown less than it expected back in 2010.
The OBR expects growth to return in 2015 with a 2.3 per cent expansion, rising to 2.7 per cent in 2016 and 2.8 per cent in 2017. It sees business investment picking up to an 8.6 per cent growth rate in 2015, at the same time as Government current spending cuts start to bite. It sees household expenditure improving from next year, growing at 1.2 per cent, picking up to 2.8 per cent growth in 2017. This offsets a meagre outlook for net trade, which the OBR sees growing by just 0.1 per cent a year between now and 2017.
There was some better news on employment. In line with the robust employment figures registered over the past year, the OBR now expects the number of people claiming dole to peak at just 1.63 million in 2014, 63,000 less than it anticipated in December. Similarly, it thinks the unemployment rate will peak at 8 per cent in 2014, rather than 8.2 per cent this year.
But there was no disguising the abysmal broader outlook. The OBR predicts that economy will still be 2 per cent smaller in 2017 than it was in 2007, pointing to a lost decade of growth.
If the OBR is right, the economy will be 15 per cent smaller that if pre-2007 growth trends had continued.Reuse content