From the TUC

Independent forecasts show the Government’s utter failure on growth and debt

15 Aug 2012, by Guest in Economics

Each month the Treasury publishes a roundup of the most recent forecasts of the UK by a few dozen independent economists, four times a year these include the medium term forecasts rather than just short term ones. Today’s release, with forecasts out to 2016, represents an utter disaster for the Government.

Comparing today’s forecasts to the latest OBR numbers gives some indication of the direction of travel.

The graph below shows the growth forecasts.

The OBR expected (as recently as March) growth of 0.8% this year followed by 2.0% in 2013. Independent economists now see a fall of -0.4% this year and growth of just 1.1% next year, they expect growth to be weaker all the way out to 2016.

This of course has serious implications for government borrowing – weak growth means higher unemployment, less tax revenues and higher social security spending. The impact is considerable:

The consensus view now is that the Government will be forced to borrow a cumulative £73.9bn more than it currently expects over the next four years.

Almost £75bn of additional borrowing to pay the price for the Government’s total economic failure.

But that’s ‘just’ £75bn compared to the March forecasts, which had already been extensively downgraded. Compared to the original June 2010 forecasts, the picture is even worse.

Growth:

Borrowing:

The Government now faces having to borrow a staggering £174.9bn more in the years 2012-2016 that it originally intended.

Those who oppose the government’s deficit reduction strategy and argue for stimulus are often accused of being in denial about debt.  Today’s figures make clear it is the Government who are in denial.  They argued that faster spending cuts and tax rises would tackle the deficit, instead they have made it worse.

3 Responses to Independent forecasts show the Government’s utter failure on growth and debt

  1. don gately
    Aug 15th 2012, 12:46 pm

    just a side issue rather than a direct comment on your main point: both the govt and the OBR have competency issues to say the least but I don’t think it’s fair to compare the june ’10 OBR prediction with the consensus prediction now.

    It would be fairer to compare the OBR in ’10 with the consensus in ’10. Predictions made in ’10 by a range of public and private institutions across the EU will all look a bit silly when compared against today’s reality as I don’t think anyone expected the euro crisis to be so spectacularly mishandled

    the OBR is over-optimistic but it is consistent and tends to have the trend right – so if you take 1 percentage point off any OBR prediction you’ll have the consensus trend. 1% is of course a big deal to say the least in terms of growth

    all govt bodies are over-optimistic in terms of growth though as they try to talk up the economy. We should recognise the OBR has a certain amount of autonomy but should stop pretending it’s independent

  2. Simon
    Aug 15th 2012, 2:01 pm

    Excellent post as ever. Honestly predictions have consistently been too optimistic from most sources. Given available information and the substantial risks involved, it’s very hard to see even these downgraded forecasts being realised in years to come.

    Given income/wealth inequality, substantial rising costs from imports (and very substantial food price hikes being inevitable at this point), lack of real wage growth and levels of household debt, things are bad enough. Yougov polls currently show exceptional gloom about future economic prospects among private individuals. There is no chance whatsoever of a recovery in confidence among consumers or companies without a real change in policy.

    All of which sadly, ignores the Euro crisis entirely.

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