A growth upgrade? Let’s not get too excited
By comparison with the last round, at the time of the Autumn Statement, there have relatively few leaks of the new OBR forecasts that will accompany tomorrow’s Budget. Instead the build up to the Chancellor’s statement has been dominated by briefing and counter-briefing around tax policy.
As a result the new set of OBR forecasts haven’t received very much attention. Today’s FT reported some good news for the Chancellor – the OBR looks set to upgrade its forecast for 2012 growth. The last set of OBR forecasts reflected extreme fears over the likely fall out from the Eurozone crisis, which have since receded somewhat. Private sector forecasters have nudged up their own expectations since then, so it seems likely that the OBR will follow suit.
Whilst the Chancellor will doubtless highlight any upgrade in his speech tomorrow, it is worth bearing in mind the context here. For all the fuss that will be generated by any upgrade (and of course an upgrade is still good news), the FT reckons that the 2012 growth forecast will be increased from an abysmally low 0.7% all the way to… a still abysmally low 0.8%.
As recently has March 2011, just one year ago, the OBR expected the economy to grow by 2.5% in 2012. At the time of Osborne’s first budget it was looking for growth of 2.8% in 2012.
The table blow summarises the most recent forecasts:
Put bluntly, the economy could grow by 1.4% in 2012 and this would be double what the OBR expected at the time of the Autumn Statement. However this would still be a poor performance compared not just to UK trend growth, but to what the OBR expected last year.
So whilst any upgrade to the growth forecasts tomorrow is obviously welcome, let’s not get too excited by them.