The consumer-led recovery?
As I’ve already noted this afternoon whilst the OBR has made few changes to its headline growth forecasts it has changed the expected composition of that growth by quite a lot more.
The Government is very keen on talking up exports and investment but by the OBR’s estimates the UK’s recovery will actually be dependent upon the consumer.
The chart below shows the OBR’s growth forecasts for 2012 to 2016 split into two categories only: private consumption & everything else.
As can be seen private consumption will is expected to be a crucial driver of Britain’s growth in the years ahead.
What is perhaps more interesting, is to compare the chart above to the one below – which shows the same data but uses the OBR’s previous forecasts, taken from the Autumn Statement in November.
Not only is consumption a major factor in the OBR’s growth forecasts but its importance is increasing. Back in November the OBR expected 12.5% of all growth in 2012 to come from private consumption, they have now revised that up to 37.5%.
Indeed over the next 5 years to 2016 , the OBR now expect over half of all growth to come from private consumption. In 4 of the next 5 years the OBR thinks that consumption will add more to GDP than net trade, whilst consumption is a more important driver of growth than business investment in every year of the forecast.
For all the government’s talk of export and/or business investment-led recoveries, the forecasts now suggest they are banking on a return to consumer-led growth.