At the launch of the analysts; 2016 World Economic League Table this morning, CEBR director Scott Corfe said they expected economic growth in the UK to be lower than the chancellor predicted at last autumn's Spending Review and warned that now is the time to stimulate the economy rather than intensify austerity.
“CEBR has generally been supportive of governments trying to cut their budget deficits, including Mr Osborne in the UK,” he said. “But there is a time and a place for this, and 2016 is not the right year except in the minority of cases where the deficit or debt problems are severe.”
The CEBR expects growth in the UK to be 2% in 2016 in a scenario where downside risks don’t come into play, and to slow a little to around 1.7% in 2017. This is compared to the chancellor’s prediction of 2.4% growth this year and 2.5% the following year.
Corfe said their somewhat gloomier predictions are down to an anticipated slowdown in the consumer-led recovery, the further spending cuts Osborne has planned up until 2020 and subdued investments.
He added the chancellor was likely to revise his own growth projections in this year’s March budget too, as well as plans to achieve a budget surplus in the next five years.
Corfe said that CEBR had always challenged the idea that the budget deficit would be eliminated by 2020, and that the chancellor might also have to alter his view and “make some embarrassing adjustments to show that public borrowing is going to continue until the next parliament” come March.
He also highlighted some downside risks that could cause that scenario to deteriorate further, including either the UK or Greece leaving the European Union, unrest in the Middle East, and falls in property prices that could impact consumer confidence.
In the UK, CEBR expects house prices to be at best flat or perhaps fall in the second half of the year.
In light of the outlook and risks, Corfe said the CEBR predicts the Bank of England to keep interest rates on hold this year and warned that deficit reduction should no longer be the order of the day and that countries like the UK, Germany and China should pursue fiscal loosening to stimulate their economies.
