Economists fear £45bn will be added to deficit by 2017
Sunday 18 March 2012
The UK's debt burden is likely to swell by an extra £45bn over the next five years as the spluttering economy fails to grow as fast as expected, experts warned today.
Chancellor George Osborne is set to undershoot the Office for Budget Responsibility's borrowing target of £127bn for the current year, due to a tighter than expected clampdown on spending and higher public-sector job losses. But the good news will probably end there for the Chancellor, as growth fails to match the optimistic 3 per cent a year pencilled in by the independent watchdog for 2015 and 2016.
David Page, the chief UK economist at Lloyds Bank Corporate Markets, warned that a banking system clawing its way back to health and facing regulator demands to hold more capital would act as a handbrake on the economy. "We remain sceptical of the longer-term forecasts that envisage economic activity accelerating in excess of 3 per cent," he said. "Structural changes to the banking system could see credit conditions remain tight, reducing the likely trend level of output in the UK economy.
"Such a shortfall in growth would leave the headline Budget deficit higher than projected – our own estimates suggest by around £45bn over the coming five years."
The OBR is likely to leave its near-term forecasts unchanged after sharply slashing its forecasts for 2012 to just 0.7 per cent last November. But HSBC's chief UK economist, Simon Wells, also accused the OBR of over-optimism which could put borrowing forecasts in later years under pressure, because its assessment of the UK's potential "trend" growth is too high.
This judgement is crucial because if the UK has lower long-term growth prospects Mr Osborne will have to cut the deficit with deeper spending cuts or tax rises rather than relying on growth to get the economy out of its current malaise.
Mr Wells warned: "The OBR assumes trend productivity growth of 2.2 per cent but this seems on the high side. We think growth in the region of 1.5 to 2 per cent is more plausible."
- 1 East 17 bandmember Brian Harvey in 'very desperate situation’
- 2 Vladimir Putin says Russia will fight for the right of Palestinians to their own state
- 5 Germanwings plane crash: I have depression. That doesn't make me a psychopath
East 17 bandmember Brian Harvey in 'very desperate situation’
Vladimir Putin says Russia will fight for the right of Palestinians to their own state
Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
Germanwings plane crash: Investigators may have already found remains of suspected killer co-pilot Andreas Lubitz
Children take eight Isis captives to be beheaded in latest propaganda video
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
£20000 - £35000 per annum: Recruitment Genius: This multi-award winning foreig...
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...