Budget 2012

Good times are just around the corner, says OBR, but firms seem set to rein in spending


Move on, nothing to see. The Office for Budget responsibility yesterday said the economic outlook is "broadly unchanged" from November. Actually, just like its outlook for the public finances, the OBR was, in some respects, more optimistic about the growth picture yesterday.

It thinks the UK will avoid a technical recession this year. The OBR sees growth in the first quarter of 2012 of 0.3 per cent, very slightly more than it predicted in November. And for the full year, it has pencilled in a modest upward revision to 0.8 per cent growth. There was a rosier picture on unemployment too. The OBR lowered its estimate of the dole claimant count at end of the Parliament by 100,000.

All that was, of course, music to the Chancellor's ears. But there were some discordant notes in the symphony.

The OBR's estimate of potential GDP growth after 2014 is unchanged at 2.3 per cent. This shows that the OBR does not think the panoply of measures by Mr Osborne yesterday – the axing of the 50p rate, the reduction in corporation tax, the National Loan Guarantee Scheme etc – will do much, if anything, to improve our economy's trend rate of growth. That really ought to come as a disappointment to the Chancellor.

More ominously, the OBR might be plain wrong in its growth forecast. The outlook of the watchdog is still stronger than the City consensus. The OBR expects growth of 2 per cent next year, against an average among external forecasters for 2013 of 1.6 per cent.

Questions about where this growth is going to come from are also multiplying. The OBR took an axe to its business investment forecasts yesterday. Private-sector investment growth predictions for 2012 were slashed from 7.6 per cent to just 0.7 per cent. There were cuts in expectations for business investment in every year to 2016. This is significant because company investment is supposed to be the motor of the British recovery. Government spending will be a major drag on growth as spending cuts bite over the coming years. Consumers are still restricted by high household debt levels run up over the past decade. The banks, encumbered by bad loans from the boom years, are still not lending. And the export outlook is still fragile. If businesses also decide not to spend, the UK recovery will fail to pick up speed.

For the OBR, strong growth is always just around the corner. But thus far this has been a corner that the British economy has proved unable to turn.

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