The good news did not keep on coming as the Prime Minister predicted. Ed Miliband, who was unmerciful in the House of Commons, noted the bad news just doesn’t stop.
The Office for Budget Responsibility halved its forecast for growth in 2013 to 0.6 per cent, down from the 1.2 per cent it forecast in December and the 2.9 per cent it forecast in November 2010. The OBR also said that “weaker receipts have halted the fall in the deficit,” so debt as percentage of GDP will now not fall until 2017/18 – two years later than Osborne had predicted when he came to office in May 2010.
After adjusting for special factors, the decline in cash borrowing appears to have stalled so Public Sector Net Borrowing is predicted to be broadly flat this year and next. The Chancellor is also going to borrow £200bn more than he originally planned. Austerity has failed.
Even this OBR forecast is not credible because it suggests growth will be 1.8 per cent in 2014 and 2.3 per cent in 2015. There is no evidence that consumption, net investment or net trade – which are the main components of growth – will grow any time soon; they aren’t.
The OBR’s belief that all will be well in two years is the same assumption they have made in every forecast – so called “mean reversion” – but this hasn’t happened and isn’t going to.
I suspect there is a better than even prospect that the UK will be downgraded another notch this year, especially after we enter triple-dip recession. This is dreamland economics.
The downgraded, part-time Chancellor did not do enough to turn the economy around in this “fiddling at the edges”, fiscally neutral Budget.
The new Employment Allowance in 2014 is a good idea, but too little too late, on the same day the Office for National Statistics revealed real earnings are falling at around 2 per cent a year. The extra infrastructure spending of £3bn was derisory. The housing allowance measures were inadequate. More of the same won’t do.
Meanwhile, the much-heralded changes, ahead of the arrival of Mark Carney as Governor, in the Bank of England’s Monetary Policy Committee remit is, in my view, much ado about nothing. The MPC was always able to do forward guidance; it was something we rejected, but we knew we could do it.
The MPC has already slowed the speed at which inflation can be brought back to target because of fears of an adverse impact on growth and employment. Permission to do non-conventional quantitative easing has already been given – indeed, it already has the acceptance of the Chancellor to purchase an additional £10bn of private-sector assets. There is also precedent given that in 2009 the MPC purchased £1bn in corporate bonds that I voted for.
I can’t see anything fundamentally new here. More fiddling.