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."
Is your name now 'banned' in Saudi Arabia?
Exclusive: World’s most pristine waters are polluted by US Navy human waste
Croatia's second city to close 'worst zoo in the world' after reports of 'nightmare' conditions and 'depressed' animals
Missing Malaysia Airlines Flight MH370: Did jetliner fly into area controlled by Taliban? Net widens after claims final satellite signal could have been sent from the ground
Missing Malaysia Airlines Flight MH370 Q&A by Simon Calder: How far could it have travelled? Who was responsible and what would their plans be? And how can a plane just vanish?
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
No EU referendum under Labour: Ed Miliband to reveal that vote on membership is ‘unlikely’ in next Parliament if party wins power
Ukip and Nigel Farage on course for remarkable victory in European elections
Tony Benn was entirely ineffectual - and usually wrong
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
The rise of Ukip: Study warns Labour that Eurosceptic party's electoral base now 'more working class than any of the main parties'
- 1 Is your name now 'banned' in Saudi Arabia?
- 2 Gender-specific books demean all our children. So the Independent on Sunday will no longer review anything marketed to exclude either sex
- 3 Malaysia flight MH370: Pitbull song lyrics bear uncanny resemblance to missing plane mystery, according to YouTubers
- 4 Missing Malaysia Airlines Flight MH370 Q&A by Simon Calder: How far could it have travelled? Who was responsible and what would their plans be? And how can a plane just vanish?
- 5 'Missing Malaysia Airlines Flight MH370 plane found in Bermuda Triangle!' Viral Facebook links are profiting hackers
iJobs Money & Business
£35000 - £43000 per annum + Bonus and Benefits: Harrington Starr: A global lea...
£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...