By Lucy Phillips
29 November 2010
The UK economy is expected to grow more strongly this year than previously anticipated, while fewer jobs will be lost in the public sector, according to the Office for Budget Responsibility.
The government’s independent fiscal watchdog published its economic and fiscal outlook at lunchtime today. It is the first report the body has issued since it was made permanent in late summer and the first to be published under the leadership of former Institute for Fiscal Studies director Robert Chote.
An interim watchdog, headed up by Sir Alan Budd, had published a forecast ahead of the emergency Budget in June.
In today’s report, the OBR raised its estimate for economic growth this year from 1.2% to 1.8%. But growth estimates for the following two years were revised down, from 2.3% to 2.1% in 2011 and from 2.8% to 2.6% in 2012. This was partly as a result of the VAT increase to 20% due in January.
Overall recovery from recession will be slower than the recoveries of the 1970s, 1980s and 1990s.
The new OBR report also predicts that 330,000 jobs will be lost in the public sector over the next four years as a result of spending cuts, far fewer than the June estimate of 490,000 job losses.
Chote said this was a result of measures taken in last month’s Spending Review to make less cuts to public service administration and greater reductions in welfare spending.
The watchdog also changed its methodology to ‘a simpler and broader view of the amount of money available to finance general government employment’. This included taking into account council spending that is financed by local authorities themselves.
Public sector net borrowing for this year has also been revised down by £1bn and is now expected to total £148.5bn. It is expected to reduce from 11.1% of GDP in 2009/10 to 1% of GDP in 2015/16, slightly less than the 1.1% of GDP anticipated in June.
Chote refused to rule out the possibility of a double-dip recession, saying next year’s downgrading of growth left ‘less comfort there’ but this was balanced by more promising GDP figures.
‘It is not impossible that you end up with growth going negative but that’s not our central expectation,’ he added.
Overall the OBR concluded than the government was more likely than not to achieve its fiscal targets by the end of this Parliament.
But the Unite union accused the OBR of ‘peddling’ an optimistic outlook on behalf of the government. General secretary-elect Len McCluskey said: ‘The reality in the workplaces of the UK is of job losses, financial cut backs and belt tightening by our members in the face of the current harsh economic climate.
‘Something does not add up here and this latest forecast from the OBR poses as many questions as it attempts to answer.’
Chancellor George Osborne told MPs this afternoon that the OBR’s forecast showed that the government was ‘absolutely right to take the decisive action to take Britain out of the financial danger zone’.
‘Britain is on course both to grow the economy and balance the books — something people repeatedly said would not happen,’ he said.
On the reduced rate of public sector job losses the Osborne stated: ‘The bulk of this revision results from the action we have taken to cut welfare bills rather than cut public services.’
The OBR’s next report will be published in four months.
