George Osborne is set to miss his target of putting the public finances into surplus by the end of the decade according to the latest forecasts by the National Institute of Economic and Social Research.
The Chancellor is aiming to turn a deficit of around £80bn this financial year into an absolute surplus of £10.1bn in 2019-20. But NIESR says that under its updated growth and spending forecasts the overall budget will still be in deficit by around £600m in that financial year.
NIESR also noted that if the official forecasts by the Office for Budget Responsibility moved in the same direction as its own at the time of the March Budget, the Chancellor’s “fiscal mandate” would compel Mr Osborne to tighten fiscal policy in response “whether or not this is an optimal response”. This could mean further spending cuts or tax rises.
The Government’s fiscal mandate, which compels the Government to aim to run a surplus in 2019-20 and in each subsequent year “in normal times”, has been criticised by many independent economists for failing to distinguish between current spending and capital spending.
NIESR expects UK GDP to grow by 2.3 per cent in 2016, up from 2.2 per cent in 2015 and rising to 2.7 per cent in 2017. The forecasting body also pushed back the expected date of the Bank of England’s first UK interest rate rise to the second half of 2016. But it added: “There remain a number of factors which indicate that commencing with interest rate rises soon would not be inconsistent with meeting the [Bank’s] remit over the medium term”.
NIESR expects a slight pick-up in the global economy this year, with growth rising to 3.2 per cent, up from 3 per cent in 2015. It said lower oil prices should boost net global demand.
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