By Richard Johnstone
9 May 2011
A second economic forecast within a week has cast doubt on the government’s ability to meet its deficit reduction strategy, by predicting a slower than expected fall in borrowing of up to £4bn.
The forecast, published today by business leaders’ organisation the CBI, predicts that public sector net borrowing for the next two years will be £122.9bn in 2011/12 and £105bn in 2012/13.
Both of these estimates are higher than the Office for Budget Responsibility’s estimates – based on the government’s plans for spending cuts – of £122bn in 2011/12 and £101bn the next year.
These represent two critical years in the government’s plan to eliminate the structural deficit by 2015/16, a year in which the OBR expects there to be a surplus in the current budget of 0.2%.
The CBI projection follows the National Institute of Economic and Social Research's prediction on May 5, which said that a slower than expected rise in tax revenues would lead to the government missing the target.
NIESR economists Simon Kirby and Ray Barrell predicted that the government’s current budget would run at a deficit of 2.2% of gross domestic product in 2015/16.
The OBR has said that, following the plans in the Budget, the government has a ‘greater than 50% probability’ of balancing the cyclically adjusted current budget.
The CBI also estimates that economic growth this year will be ‘patchy and slow’ at 1.7% of GDP, marginally lower than its February’s forecast of 1.8%. This follows what the CBI called ‘modest’ 0.5% growth for the first quarter of this year.
CBI director general John Cridland said: ‘The economy is battling headwinds of squeezed household budgets, weak wage growth, high inflation and necessary public spending cuts. Concerns also remain over the volatility of oil prices and the impact of the earthquake in Japan on UK supply chains.’
The business organisation has also downgraded its growth projection for 2012 from 2.3% to 2.2%.
CBI chief economic adviser Ian McCafferty added: ‘What remains striking is how little we expect the pace of growth to accelerate in 2012, and that it will be far less robust than we’d normally expect in the second and third years of a recovery.’
