OBR UK growth forecast downgraded

Stephanie,

Do the OBR's figures take into account the £6.25b cuts announced by the coalition government last month?

If so, surely they're not comparing like-with-like against Darling's figures before the election?

And is it any wonder that growth forecasts have been downgraded after the coaltion prematurely pulled the rug out from underneath the economic recovery?

I would be delighted to be proved wrong but I am nervous as to a growth figure of 2.6% for 2011. Is this an accurate statement or an aspiration? I am sorry to be so questioning of the OBR so early in their time but I have become nervous of government economic statements over the years, particularly during the last two.

I accept that its is perfectly valid to cut back on the previous government's generous expectations but the real economy is still very wobbly and is likely to slide back rather than improve in the medium term. Maybe their estimates of a later fall back reflect my scepticism.

Still, I don't want to rain on their parade this early in their existence.

OBR confirms that the UK economy will grow faster than both the Euroland and the consensus forecasts of business economists. Moreover, the OBR forecast implies that government debt is already trending below previous forecasts. We're even into potential profit on the QE stocks the BoE holds!!
In short, GROWTH remains the main answer to the UK deficit.
The danger is that government doomster rhetoric will adversely affect business confidence. Lowering business confidence will talk down the investment component in future GDP growth.
It's time the government stopped denigrating British economic prospects.
A lot less exagerated doom and gloom from Ministers and the Media would be favourite just now.

At 10:44am stanilic wrote "I have become nervous of government economic statements over the years".
I'm not surprised, most of us have, but the whole point of the OBR is that it is supposed to be independent of government. We may well become cynical in time but for now, after its first conclusion, let's give it a chance.

Of course, the real test of the OBR's independence will come when we see the impact on their forecast of contractionary effects of Osborne's axe-wielding so-called emergency budget.

If the 2.6% figure remains largely untouched, we'll know that this supposedly independent new body is just the Treasury's poodle. And when reality bears out Blanchflower rather than Budd, that will mark the end of this little constitutional experiment.

This is now the coalition's mess, they cannot blame "previous government" anymore. As the public debt falls £8bn on budget forecast and £23bn over five years, it begins to look like Labour were right all along. Brace yourself folks, double dip here we come.

5. At 11:02am on 14 Jun 2010, Tim wrote:
Of course, the real test of the OBR's independence will come when we see the impact on their forecast of contractionary effects of Osborne's axe-wielding so-called emergency budget...
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Fully support your view. I posted the comment below on the wrong blog:

The OBR, what a joke!! First assignment and they evaluate the wrong set of numbers.

OBR has just released their growth forecast based on Labours budget. Will they re-evaluate after the Tory emergency budget which is supposed to be growth negative relative to labour's spending plans. Will they tell the truth. Will they predict a lower growth rate after 22 June...?? Never!!.. These idiots will probably go on holiday until the next election

Clegg's cuts has a certain ring to it...he will come to regret his "progressive" cuts comment....the markets failed...it is not 1979 again.

Still nothing left in the kitty .

"For similar reasons, the OBR has cut the estimate of the amount of spare capacity in the economy at the end of 2009 - from 4% of GDP to 2% of GDP."
With 2.5M unemployed and another 4.5M on benefits who could work, how does the OBR even start with 4% spare capacity?
Above Nos 3 and 5 obviously get it even if Cleggmeron don't that you will soon be talking further reduction in growth if Osborne junior actually succeeds in reducing public expenditure. Further reduction will mean more deficit and so on - the consequence of Micawber moneynomics!

Yes I cannot see this being any more or less independent than the civil servants previousley at the treasury.

As someone else commented it will be interesting to see the OBR's view of what Georgie Osbornes budget will do to GDP and I am assuming this includes the already announced £6bn of cuts.

Given the apparent effect of all this rhetoric by the CON-DEM coalition given the other reports on this website, can we assume that these calculations are now null and void now, with far lower growth to be expected all down to the current government nothing to do with the last.

I have a recollection that before the "delights" of Gordon Brown the long term trend growth for the British economy was about 2.5%. Therefore it seems the OBR is simply saying that after a prolonged boom caused by a combination of out of control public spending and out of control banking, the British economy is reverting back to its normal state.

Based on those who state that the OBR is a poodle if it does not factor in the effect of the Govt proposed public spending cuts I have two comments:

1. They can only factor them in once they known how much the cuts are and where the cuts fall.

2. The argument taken to its logical conclusion results in never cutting public expenditure because it will damage the economy. Sometimes we just have to take our medicine even if it means we will feel bad for a while because it is the only way to get better

I suppose if the Tories cut by 0.4% of GDP and we do get a growth rate of 2.6% will they admit the previous chancellors figures where correct?

Since Darling's figures have now shown to be about right - optimistic growth forecast counterbalanced by pessimistic spending forecast - do we still need an "emergency" budget?!

Also, will Dave now retract his "worse than we feared" comment? If he "feared" that Labour were being pessimistic, he certainly didn't say so at the time!

Since there are no publicly-owned advertising agencies or consultancies, the kind of cuts in public spending on advertising and consultancy that have been announced by the coalition are largely being borne by the private sector.

Not that I'm saying that efficiencies aren't possible - just that the rhetoric isn't supported by the facts.

We do great harm to our economy in talking it down. Its in everybody's interest to shout about what we do and how good we are.

Retailers in our country are under a huge amount of pressure so scaring of what little custom there is out there with negative press is simply irresponsible.

Its a pity that our Great Bulldog spirit is being destroyed by people who see it as a democratic right to trash our country with headlines and figures that mean very little to most people.(i don't mean you Steph)

We all know that its bad out there, we don't need to be told on a daily basis.

Lets here some good news stories from the BBC about British Business success stories....now there's an idea for a blog..........

Being independent doesn't mean cleverer. The optimism of the previous predictions is more likely to be because these things are immensely difficult to predict.

I have a few conspiracy theories:

The OBR will confirm the treasury forecast of 3.25% on the 23rd June. This will supposedly be a revision based on anticipated Tory magic in the next few months??.. Great trick

The next conspiracy which is partly off the subject:
BP could have prevented the devastation in the Gulf of Mexico if it had sucked up oil off the surface using all the spare oil tankers available. This was however not possible as all the spare oil tankers not transporting oil were being used to store oil to create false scarcity and to drive up prices... ;-)

Surely these kind of predictions are worthless, since there is no underlying accepted theory about how the economy works. Neo-liberals, now running all European governments, believe that massive public spending cuts will get the private economy started, while dissenting voices from UK and US are convinced that the scale of cuts envisaged across Europe will send the whole world into depression, repeating the errors of the 1930s. After all, where will the market be for the supposed growth in private enterprise, when all countries are cutting spending and jobs?
We are also told that this new committee is "independent", but this is also nonsense, since it depends on the ideology of the economists on the committee.

The OBR - well it clearly stands for the "Office of B******t recovery" - because that's the only type of recovery we're going to get!

Whilst any fool could have told you that Darling's growth projections were ridiculously optimistic (and in fact this particular fool did say that at the time!) - it's very useful that this new 'independent body' has come up with the correct answers - i.e. the ones that mean Osbourne can justify deeper and deeper cuts.

It's very telling that the first thing the new Government does is to set up a 'QUANGO' to advise it on how to read the books correctly (because that's all the OBR is) - and filled it with Economists and Civil servants who didn't see this mess coming

If you look closely at the team - it's led by 'Sir Alan Budd' - who (purely coincidentally) was an advisor to the treasury under Ted Heath - so there are no allegiances there then. Oh and of course he's an 'adviser' to Credit Suisse - again lets hope he's not advising them about the inside of the treasury's dealings.

The second of the members (Geoffrey Dicks) is currently 'on sabbatical' from his day job at 'Novus Capital Markets' - so definitely no conflict of interest there then - right George?

Novus advertise on their website "client service and innovative financial expertise across our business divisions" - and we all know where 'innovative financial expertise' gets us - don't we?

Finally there is Graham Parker - again someone who worked in Government under the Tories in the Thatcher years - again someone who is totally unbiased in their feelings towards cuts. He has also been awarded the CBE for his "service to the Treasury and his work on the public finances"

....but wait a minute - aren't our finances in a complete mess? - So we have employed the man who was awarded an honour for his work during the time where the Tories claim the 'Economy was being mismanaged'?

How bizarre - still, as he then went on to work for the IMF we can assume he has no idea what a Ponzi scheme is and how they always end.

So remind me why we need this body again? - it looks like an alternative to blaming the previous Government when this start going pear shapes in the Coalition ship of fools.

Moderators - nothing I have said hasn't come from the following 2 sources of information and therefore contains nothing libellous.

https://budgetresponsibility.independent.gov.uk/who-we-are.html

https://www.novus-cap.com/

There is not going to be any double-dip, because there has been no honest recovery at all. Printing £200 billion as they did to paper over the banking fissures maybe fooled some of the people, but to most of us it was a defibrillated dead-cat bounce. There is no true growth.

We are down a very deep hole, and we aren't gong to get out of it without serious pain across the board. That means savers, pensioners, students, workers, employers, and hopefully bankers and politicians. And if the American financial system falls like I expect, then we don't get out of the hole until we get regime change and wholesale default.

Merv. get them interest rates up to 3% at least and reward those thrifty savers who didn't do anything wrong. (Sadly that doesn't include moi)

guess who set up the OBR?

yes thats right the tories did last year, is it independent?

as independent as Gen Sir Richard Dannatt's appointment.

is the Lib con way any better?

most economists and good ol steph say no! in fact the policies of the last government would have brought about the same conclusion, albeit without the cameron/clegg manufactured double dip recession.

where are the lib dems who hold their values so dear now?

As the UK economy’s relies so much on confidence its greatest enemy at this point seems to be the new governments desire to under promise and over deliver.

I fear that this is the most dangerous gambit of all, the recovery will needlessly be damaged before it is repaired.

Problem with growth is that it has come on the back of borrowing both public and private. We are now entering a new era where we (well most of us) have realised that the debt bubble cannot safely be inflated any further but probaly havent got any real policies to replace debt fueled growth. I personally cant see how we can have growth and nor that we really need it as long a we are not paying interest on a massive debt, but we certainly cant afford a sizable recession and even to avoid this will be difficult without resorting to more spending. In hindsight money shouldnt have gone on bloating the public sector or propping up banks but should have gone to investment in industry. We need to take measures to cut back in a way that allows spending to encourage real as opposed to paper growth.

"the OBR's estimate of structural borrowing - the part of the deficit that won't go away with the recovery - has been revised up, by 0.6% of GDP in 2010-11, or around 8bn."

What are you talking about?

What on earth is a "structural deficit"? Any budget deficit - any - can be eliminated by economic growth, tax rises, spending cuts or a combination of all of these.

"Structural deficits" are a chimera for textbook geeks with no appreciation of how the real world works.

Further, the Office of Budget responsibility is an epic QUANGO conjured up by Tories blinded by their own bizarre paranoia about Labour's numbers while they festered in opposition. It doesn't add any value, and its first job has been to torpedo the witless scaremongering of the Prime Minister.

I recently read that a country will be downgraded from AAA when its annual debt interest exceeds 10% of GDP.

On that basis, it is not going to be case of if we lose our AAA rating but rather when.

When do Stephs bloggers think that unhappy event will occur, given the latest growth figures?

I presume that 2.6% growth is based on pattern of spending established by Labour. With the additional Osborne/Alexander cuts I fear a significant reduction in domestic demand, I have already increased my precautionary saving in expectation of hard times ahead.
I do, however, expect the coalition to be held to account if growth falls anywhere below 2.6! Osborne has made a lot of capital about the credibility of the new forecasts and he must now endorse them as an indication of what is possible next year, and as a performance indicator for him and the coalition.
Having said that with Frau Merkel chopping the European Economy to bits the 2.6% is a lot more optimistic than I expected.

All this user's posts have been removed.Why?

16. At 11:38am on 14 Jun 2010, smartie wrote:

"We do great harm to our economy in talking it down. Its in everybody's interest to shout about what we do and how good we are."

No we don't - what does great harm to our Economy is pretending things are not as bad as they are.
You see investors will stick with you - but as soon as they find out you're lying (or being economical with the truth) - they flee for the hills.
Unfortunately no Government in the recent history of the UK has been able to conduct itself without lying about the situation.

Brown used ideas like PPI to cover the mess, Thatcher sold off UK assets to give the impression of 'cuts bringing value' - sort term bonuses for long term pain.

In both cases investors realised eventually and pulled their money out eventually.

The myth that we can 'talk ourselves' in or out of a recession is nonsense - put about by business men who don't understand the essence of Economics and who are confused as to why the system keeps breaking down.

The autonomous movements of the markets are not something which is driven by confidence - market confidence comes from hard facts and figures - the lack of confidence we see is due to the realisation that the hard facts and figures all point one way.......downwards.

We should have called the IMF in to audit the country's books. If the figures were bad, then they would have seen that we were up front about them, if we have to borrow from them. The major point for me in all this is how poor our elected representatives have been over the years. If you are being advised by folk in the treasury, they will run rings round the chancellor unless he has an understanding of financial products(basic and sophisticated), markets(forex, stock and bond in particular), the economy in general and the electorate. The chancellor and most politicians cannot react fast enough to the forex market so forex traders seldom get burned and bond vigilantes control the amount that he can borrow. Whilst the general electorate believe that a chancellor or prime minister is god and can do anything, the reality is that globalisation has reduced their power. In some cases, this is a darn good job. I would like to also see the budget signed off by the Bank of England or some other body as being reasonable. Why aren't the public sector wages, public sector pensions, old pensions, PFI and probably QE part of the budget? Having them off budget makes a mockery of the accounting practices.

Theres lies, damn lies, and statistics. Looks like the OBR will be good at all three. Various figures will be conjured up to deceive us from the reality that there is no prospect for economic growth over the next 10 years and to delay the inevitable default that will happen as a direct result.

Stephanie, you are on the inside, I am not. You know these people. I am very grateful for your assessment of what has been said and find it most informative. But I wonder ... are these guys parroting the consensus City forecast? Have they made a truly independent assessment of the figures unaffected by both politicians and the views of thise employed by banks, investment managers etc. Grateful for your assessment.

6. At 11:12am on 14 Jun 2010, Disnaymatter wrote:
This is now the coalition's mess, they cannot blame "previous government" anymore. As the public debt falls £8bn on budget forecast and £23bn over five years, it begins to look like Labour were right all along. Brace yourself folks, double dip here we come.
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Gordon - you've been rumbled. We haven't seen much if you since you resigned, but its interesting to see you now spend your time frequenting finanical blogs and posting nonsense.

The new Government needs time to undo the ridiculous economic mess your Government created, so given the sheer state of the nations finances they have been left with they have every right to blame the previous government!

I appreciate that forecasts are an unavoidable precursor to future planning but ask myself- how many times do we hear that a previous forecast has been anything like accurate? At least in my perception forecasts are there only to be proved wrong by events - financial "experts" seem to have a sucess rate no better than my attempts to win the lottery . The old chestnut that"you can prove anything with statistics" is as relevant as ever - wasn't it "experts" who brought us to this situation In the first place? Perhaps Mr. Darling would do better to zip his lip!

Well, we better all hope that things go well for the next decade or more, because if anything should really upset those growth and borrowing estimates we're in a lot of trouble.

Acceptance is the first step in overcoming DEPRESSION!

Geoff at 19 is quite right this is another forecast to set among the rest. Of course it is the 'official' and Georgie and Alex must be spitting the proverbial feathers. But we were told by the cameroon spinner (only £140,000pa ..a snip) that the Treasury wonks were divided about G&D's policies. So no doubt G&A have another set of in house experts lined up for for next week. Maybe Steph has inside knowledge of who they are and there views.

However this is beside the point. Cameroon wants a revolution.... 'which will change our lives for ever'!!! and which will be seen the Spending Review seeting out the 'Coalition's' actual objectives and how they will be funded. We already have the privatisation of schools with zero community involvement), Health is sure to follow. as is social care to be provided by 'community/charity organisations hiring private sector contractors and eventually at least co funded with the user (means tests)

You might even have to arrange you own contractor for rubbish collection like the Irish have to from one of the bin peoples Co-ops perhaps or the Eco Church recyclers.

On last point... watch out for G&A claiming Labour cuts as their own... the capped NHS budget, the reduction in university student numbers are example. Let Liam and Alistair tell us how it is.

Whilst you are all arguing over who's right and wrong, and a few billion here and there, try not to lose sight of what we are actually borrowing and why, to fund a lifestyle and public services that we cannot afford. Add to that the fact that public sector debt is less than half of the story and private debt is the elephant in the room and you can begin to see the scale of the problem. Debt deflation here we come.

Our boom, if you can call it that, was created by magically increasing house prices, and then going on a debt binge based on borrowing against it. Add into the mix government borrowing and our boom is fuelled by nothing more than excessive debt. Not only that, going forward we have all Mr Browns off balance sheet PFI commitments to pay for and public sector pensions that are simply unaffordable due to demagraphics and also the fact that they are ridiculously generous. How much longer can we afford to pay people to retire at 55 ?

All this has shown is Alistair Darling was an exceptional Chancellor, calling the issues, making the decisions and forecasting near perfect growth figures in exceedingly difficult circumstances, all the time being completely honest about the severity of the situation that the country faced, and remaining positive about the u.k’s future with the concrete plan for deficit reduction, ensuring growth and jobs.

By contrast the hysterical ramblings of George Osborne and his cronies about money spent of fruit and pens, and how this country is “doomed” and that it’s “worse than anyone could imagine”
This country will pay a high price for electing these inexperienced bafoons, who’s only decision making process, is based on their failed neoliberal ideologies.
Had their policies been implemented earlier we wouldn’t be looking at growth forecasts’ that are 0.7% out (after 6 billion of cuts) but we would be staring into the abyss of another great depression.

I can’t stand watching this car crash of a government as the Lib dems prop up this Tory government, many under duress I expect, whilst the tory’s who act like they won some sort of outstanding majority.
Split this farce of government up and recall a general election before it’s too late.

Interesting that today I read that the Institute of Economic Affairs' (IEA) are warning the actual debt is six times higher than official estimates. It has claimed the Treasury has racked up liabilities of £4.8 trillion - or 333% of GDP. Seems to be mainly because of the spiralling costs of state pensions.

So which figures are we to believe?

Did David Blanchflower really say "death spiral"? It sounded to me like debt spiral. Which I undrstand to mean that cutting the deficit led to a fall in GDP (or growth) leading to a fall in tax income so increasing the deficit and leading to another round of cuts.

31. At 12:27pm on 14 Jun 2010, Averagejoe wrote:
Theres lies, damn lies, and statistics. Looks like the OBR will be good at all three. Various figures will be conjured up to deceive us from the reality that there is no prospect for economic growth over the next 10 years and to delay the inevitable default that will happen as a direct result.
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Just a tad negative ... ?

A big assumption that there is no integrity out there

Although previous forecasts have been somewhat off the mark more than rarely, i think its important to say how hard/futile it is to accurately predict the future of about a year and a half in advance. To get it right every time would be strange

33. At 12:32pm on 14 Jun 2010, Loftgroov wrote:

"The new Government needs time to undo the ridiculous economic mess your Government created, so given the sheer state of the nations finances they have been left with they have every right to blame the previous government!"

I think the total lack of any credible plan is the issue here, not really the mis-givings of the previous Government.

In any case - despite 'popular belief' in 1997 when Labour came to power they didn't increase public spending at all - in fact they maintained the same level until 2002 - where they started to reduce it.

Whilst there was an increase in public spending between 2002 and 2007 - things didn't really take off until then - which is when the Government took on all that bank debt (remember that do we?)

What was most noticeable was the restriction the previous Government faced when turning to the usual solution (selling off national assets to pay for the national debt) - because when they looked in that closet they found it was bare!

- unfortunately sold off by another previous Government....a re-incarnation of which is now going to have to solve the same problem their predecessors created all those years ago.

Surely the structural deficit is a measure of how much the neo-liberal policies will cost the taxpayer. That would include costs for spending cuts, currency devaluation, trade liberalisation, supplementing foreign direct investment with "open" domestic markets, removing price controls, removing state subsidies, privatisation of state assets and enhancing globalised investor rights. In short: all the dictations the IMF and World Bank make to blackmail developing countries into implementing neo-liberal policies in return for overpriced loans.

The overpriced loans being offered to finance the economic decimation. In business it is called asset stripping. This also explains why the "structural deficit" does not fall despite a fall in borrowing and rise in receipts.

What the Office of Budget Responsibility is telling the world is that labour inflated the projected spending for the near future. Which suggests that giving a true account of the national balance sheet would appear to cut the deficit while, in fact, simply restates the balance sheet to a less pessimistic one. Any cuts that result in withdrawal of budgets at a local after that restatement are, inevitably, driven by neo-liberal ideology. In short: making us pay for the banking crisis a second time.

The argument that the growth forecasting error predates the crisis is a clear indicator that the Office of Budget Responsibility is never going to be independent of neo-liberal policies. It might be independent of Osborne but it is anti-democratically linked to Banking. Indeed, when Cameron and Clegg are booted out the OBR will remain and sustain the same neo-liberalism that has been rejected by many developing countries. A rejection that suggests these institions that are "too big to fail" are now seeking the same relationship with the industrialised world as once fuelled such situations as the Emergency in Chile.

While the sudden rise in "lost" income from £70Bn to £120Bn is being explained as "growth that will never happen" the far more reasonable interpretation is that the policies that will be put in place will cost £50Bn to sustain. The political ideologies of the Neo-Liberal ConDem Government have an immediate price tag of £50Bn before they get started. Again, the taxpayer is being expected to pay for an ideology. There are frequent complaints that Labour was buying a certain sector of the Electorate with benefits: That is not in dispute here. That previous "buying" does not justify the ConDem purchase of Shareholders loyalty in a disaster capitalism scam of epic proportions. A scam that will last generations.

Given its much vaunted "independence" the OBR should present it's own budget independently of the Chancellor. The same standards of chinese walls that exist in the Financial Industries being put into place to ensure no collusion between the Investment and Analysis organisations (we can all decide which is which). By presenting a full and frank Budget, the OBR can establish that it is not simply an adminstrative poodle of the ConDem Neo-Liberals but a genuine replacement for the Office of National Statistics and the National Audit Office (Two Organisations that are more separate than Chancellor and OBR and Banking Industry). This suggestion will never happen: it would offer too easy a target for everyone except the ConDem Neo-Liberals whose economic subservience to banking would become suddenly very obvious.

What the OBR is attempting to present is a grim forecast that ensures that the recieved wisdom of existing International Banking practices are implemented as national policy. While this makes perfect sense to a Neo-Liberal ideology, it is exactly the recieved wisdom that created the current situation. Unless George Osborne and the OBR can explain how entrenching unreformed, failed, banking practices into policy and administration will do anything except strip the economy of assets and ensure failure, then the entire exercise is little more than window dressing for a repeat of 1979.

Except in 1979, the situation was a good deal more different. In 1979, International Banks were - or were attempting to - asset strip countries such as Brazil, Russia, India, China and successfully doing so to other countries such as Argentia and Chile. Having no useful strategy left in the "developing" world, the Banks are focusing on the "developed" world. Like Greece, the Banks would like to asset strip all of Europe down to "developing world" economies. That would guarantee them a future income by reengineering the budget around a structural deficit. Or, Future Banking Profit, as it could be called.

People seem to be grasping at these figures to prove their side (labour, conservative or liberal) were right. These are forecasts. So what if by 2015 a part (certainly not all) seems to tally. It does not necessarily justify their proposals for the interim. AND IT IS NO EXCUSE FOR THE BROWN SPENDING SPREE WHICH LEFT THE UK ECONOMY SO VULNERABLE, IN SUCH A MESS AND TOTALLY UNBALANCED.

If cutting public spending now will reduce growth, does this mean that previous year's growth was increased by debt funded spending ? If this is the case, is there a measure of GDP change that allows for this ?

As with poster #1 I wonder if this is taking into account the cuts.

If so, then I think they are still overstating growth.

If you tell millions of people that they are at risk of redundancy they stop spending. If you cancel state contracts with hundreds of private firms, they go bust and other firms loose confidence. Yet more firms see the reductions in activity across the board and loose confidence. This has been confirmed today with the business trends survey which has shown the most extreme fall since 1995.

We could see the beginnings of recovery but this may now have stalled and even reversed. Personally I would predict 3 million unemployed and even negative growth by Christmas.

Fairly remarkable result for Bertie Wooster’s first few weeks as chancellor – and all this before he has even made any of his precious cuts.

All those "Darling was right after all" supporters need to remember that Labour was so industially treacherous that it was happy to spend money to ensure UK industry got weaker and weaker.

Witness its lunatic decision to take search and rescue away from the Royal Navy and the RAF and privatise it via a PFI deal whereby a Canadian helicopter company would borrow money from RBS to buy new aircraft from the US company Sikorsky.

The idea that the UK economy has a sustainable long term growth rate of more than about 2.75% annually is a belief long held by politicians. Unfortunately, experience teaches us that efforts to make the UK economy maintain anything more than about 2.5% is rather like putting rocket fuel into a Morris Minor: a spectacular flash and bang, followed by prolonged spluttering.

Listening to Alan Budd he presented the figures as a central prediction with, for example, a 40% chance of growth being between 1.4% and 3.5% (if I remember the figures properly.)

Why do both politicians and economic commentators misrepresent the report by presenting only the central forecast?

The reality is that these figures are just a small update of the last set of figures with slightly changed assumptions and a couple of months more data - no matter how George Osborne misrepresents the numbers!

In the real economic World there are huge structural uncertainties and it is probable that these uncertainties are bigger now that they were in the past due in the main to the unpredictability and volatility of future events.

I think it is almost essential that the confidence bands of all future budget estimates are presented by the media - even with just a graph - but they must be presented.

51 posts and no KevinB
Was it all a bad dream ?

I would much rather have an optimistic assessment of the future than a needlessly pessimistic one.
And basically what this assessment is saying is that Labour were pretty much spot on, ok they hoped for a bit too much growth .....they had to in order to change mindsets, but they factored in excess unemployment in case growth did not square up to this.
What the OFR seem to be really saying is that under the Tories the Economy will grow slower and the cuts will run deeper in part due to the Tories inflicting gloomy prospects and doomy policies on the Economy.
So far the Torydems are proving disastrous.If they talk us down we will be down......Lemming Leadership.
Half of economic recovery is about feeling good.
Britain is desperate to move onwards and upwards.
Let's let it !
Can the people of England please, please try to ignore the incompetents they have elected and let the country get on with it?

#39 - "recall a general election".

We just had one, you lost. Get over it. It will take years before you guys will be trusted with the levers of fiscal and monetary power ever again.

It is a complete mess, and all the spin about "paying off the deficit" won't help. Sure, it might fool some people that "deficit" is the same as "debt", but not people with a brain.

Am I delighted we've got a Tory Government? No. Am I relieved that somebody - finally - is willing to do something about the gross imbalances in the economy and give my children a fighting chance of not repaying debt their whole lives to pay for the spending orgy of the "prudent" Mr Brown? Yes.

A bit off-message, but can anyone explain why the Swiss National bank purchased a staggering 55 bln Euros in May - this sounds like a significant event in the current climate!

Can anyone, in the interest of transparency, tell me the salaries of the top three OBR appointees and the annual cost to the taxpayers of this new Quango?

21. allmyfault:

"There is not going to be any double-dip, because there has been no honest recovery at all. Printing £200 billion as they did to paper over the banking fissures maybe fooled some of the people, but to most of us it was a defibrillated dead-cat bounce. There is no true growth".

Exactly - we haven't even had £200bn worth of growth, so we've not really come out of recession at all.

There's a lot of theoretical logic behind the Darling (et al) argument that fiscal tightening could reduce growth prospects. But the part that the advocates of not cutting (or delaying it) miss is this - if we carry on running a big deficit, who are we going to borrow it from, and what will it cost us?

Keynesian logic dictates that government moderates the cycle by running a deficit in a downturn, yes, but also by running a surplus in good times. If the previous government had accomplished the latter, we could now afford to implement the latter. Unfortunately, they didn't, so we can't.

There seems to be a fair number of Labour lovers on here today.

Do they not realise that when they took over in 1997 the UK public debt was £352 billion. As a result of 13 years of mis-management, and now 5 years of massive cuts ahead, we are quibbling over small differences today, but not over the fact that the debt will be about £1 TRILLION more!!

How anyone can be positive or proud of what this country has done to itself just amazes me.

#1 IanR..

What economic recovery are you talking about?

Remeber this is the bit where we face the reality Labour spent billions postponing until after the election... the recovery never started.. Brown and Darling were just talking about the spending bit, there was never a plan to stop!

We of course could have continued borrowing money and waiting... then the Eorozone and the IMF could tell us where the cuts should be....... like Greece!!!

55. At 2:40pm on 14 Jun 2010, Heinrich_Friedrich wrote:
A bit off-message, but can anyone explain why the Swiss National bank purchased a staggering 55 bln Euros in May - this sounds like a significant event in the current climate!
----------------------------------------
The Swiss are trying to prop up the euro to slow the rate of wealth looking for safety in Swiss banks as too strong a currency is not good for their economy.

#53. onward-ho wrote:

What the OFR seem to be really saying is that under the Tories the Economy will grow slower and the cuts will run deeper in part due to the Tories inflicting gloomy prospects and doomy policies on the Economy.

They are not saying anything about the Tories, it was a statement of how they read the figures based on what the Tories have inherited.

You knew that really though, didn't you?

Only when the OBR re-do their forecasts after the emergency budget can you make any claims about the impact of Tory policy.

31. At 12:27pm on 14 Jun 2010, Averagejoe wrote:
Theres lies, damn lies, and statistics. Looks like the OBR will be good at all three. Various figures will be conjured up to deceive us from the reality that there is no prospect for economic growth over the next 10 years and to delay the inevitable default that will happen as a direct result.
------------------------------------------------
Just a tad negative ... ?

A big assumption that there is no integrity out there

"integrity", not likely from the members from the old boys club chosen to make up the team. How about some fresh "objective" blood chosen from somewhere other than the usual sources.

#53. onward-ho wrote:

So far the Torydems are proving disastrous.If they talk us down we will be down......Lemming Leadership.

In fact the opposite is happening. UK 10 year bonds are now at about 0.5% less since the Tories took over, which will mean it will cost £800 Million less in interest payments in ONE year to cover the £156 Billion deficit borrowing of this year. And of course much more in total over the following years too.

So you are completely wrong. Because the new government are taking steps to sort out the mess, the market is pricing us as being more trustworthy. So we will reduce the problem doubly as fast, as the total we need to borrow falls, and the cost of the extra borrowing falls too.

Fairness

Nick Clegg made a point about "fairness"...

Apparently everything will now be 'fair'. I wonder if this includes a fair price for money, and a fair return to lenders? Will they bring back usury as a criminal offence for example?

My guess is (still) no!

This will mean that this government, just like the previous (Tory and Labour) governments will continue to con borrowers into borrowing more than they can afford fro student loans and homes to provide an 'appearance' of economic growth when in reality it is just borrowing from our children!

Proof that pessimism does not pay:
https://news.bbc.co.uk/1/hi/business/10304797.stm

Pipe in some Prozac to nos 10 and 11 before we all need it!

@58. At 3:05pm on 14 Jun 2010, jonearle

We can export real estate agents and bankers now, before labour we could export goods. That's an achievement

At 54

You are exactly the type of Tory I’m aiming my comments at, you are supposed to have a liberal/tory coalition but the facts there for everyone to see, and you say it yourself, we have a Tory government who failed to win a general election being propped up by the liberal party through deals that where done (in my mind) prior to the election between Cameron and his buddy Nick, it was designed by the pair of ‘em and funded by the banks and corporations and it’s completely ideological and nothing else.

The one thing I can’t understand about conservative voters, is what it is they want, they claim to be patriots but are happy to see the country run by companies and profiteers at the expense of it’s people,
You say you don’t want your children to inherit debt but the facts your children will inherit something far worse, a life of private insurances, hospital bills, a lack of housing, energy shortages, clogged up roads, unaffordable transport, socialless communities, unemployment, welfare dependents, dependent on charity, direct debits and contracts for every service from energy to receiving and sending post, to the air they will breath, year on year oil wars and environmental disasters, you kids will be working well into their 70’s with unionless representation in industry and with sweat shops dominating our cities as global capitalism makes us compete with the 3rd world industry by forcing wages in the private sector down and down, whilst profit margins get bigger and bigger and with every collapse of it’s great institutions your kids will pay and pay and pay again to those on top on top.
Because of the situation started by the conservatives and the failings of the last government to address it we need to seriously consider the options for the future that this country has
But this bunch are hammering in the nails.

Is it a surprise that a Conservative Party construct, The Office of Budget Responsibility (OBR), should utter the words written by George Osborne/ What is surprising is the lack of influence of Vince Cable in this "coalition" to point out that Emperor Osbourne and his OBR1 KNOWB have no clothes, that the history of its Chair is to recommend hacking social provision and freedom for profit. As has been indicated by Mr Elliot (the Guardian Economics Editor) the Thatcherite attack on "public expenditure" historically, both in the 1980s and 1930s, led to social deprivation for the majority and wealth creation for the few. The growth of the post-WWII boom came from the full employment and capital investment in war production and post-war reconstruction, enabling the enormous social progress that millions of Britains, and other around the globe, had died for. Here we have the pampered, untouched by social harm, school boys of Eton, re-establishing a social order of the nineteenth century. Are we sure, that unlike John Major, George and David can actually understand the concedpt of money, and calculate loose change?

Davis Cameron has mislead the electorate into believing his "innocence" in the planned destruction of social welfare, no free health care (soon to be USA model); three tier education (sinking, drowning and public schools); a deregulation of the workplace (health and safety out the window); profit at all cost (paycuts for all, short/part-timne working for all; taxbreaks for employers; taxhikes for employees). Where is the White Knight Nick Clegg and his acolyters in all of this (locked in a cupboard to be used to front the nasty bits). The underhand nature of this government in creating realities of responsibilities in the financial crises. The banks threw money at everything in sight; accounted debt as profit; lost the fictitious wealth in some offshore tax haven; demand the taxpayer save the financial system; pocketed even more of the publics' money (to be paid by us all for evermore) then used it to yet again fictionalise profit out of debt, and unsurprisingly pay themselves huge bonuses (in tax avoiding/evading systems).

We then see our government, busily shedding responsibilities (i.e. doing what they are paid for) to unelected/unnamed/friendly "so called experts" to run the paying public into the ground. Where wewre these "so called experts" when RBS/Northern Rock/Bradford & Bingley/Lehmann Brothers/Fanny Mae/et. al. were running a circus of excessive financial incompetence? From either ignoring or sharing in the financial glutany of the past 10 years these individuals put themselves forward to fantasies about their future gains from the majority's pains. Can anybody on the globe point to the huge pile of money that has been lost; the trillions of fictitious wealth; the trillions of fictitious debt? George Osbourne wants Britain to become an exporter of goods, to pay off the debt by selling our products. Can anybody tell George who is going to buy these wonderful new things, when Europe/America/Japan/et. al. are in financial collapse? Did none of his lecturers on his PPE course explain, in the simplest of terms, that to sell you need somebody wanting to buy? Oops, I think he missed that section of the course, probly while clubbing with chum David.

Unless the Conservative government, forget the Lib-Dems who are merely there for the ride with no influnce on the road taken, are seriously attempting to take Britain back to the forelock tugging days of children up chimneys and down the mines, they are demonstrating a total lack of consideration for the future of the vast majority of the population. Their desperation to lead the world in to a downward spiral of protectionism; recession and eventual global depression lacks any notion of responsibilty for their position. Governments, understandably, govern, they do not give control to vested interests (The Bank of England has not had a very good history of controlling their own - too many things in cupboards and under the carpet - too little vision of where fiscal actions are leading). At a stroke the Conservatives have fullfilled their profecy that things are worse than their Labour predecessors indicated, because they are making them worse through their actions. The markets both share and exchange, were secure in the fiscal policies being undertaken to hold the world's economies together, yet George has a vision, a desperate desire to make it so, and as a result we all sink in the mire of social collapse. Maybe a visit to Norman Tebbit will help him understand what a depression really means, or a trip round the stately homes now supported by public, or taxpayer, donation, to see how far reaching a financial depression can be when it is rolling ever downward.

Why are "economic gurus" always so flavour of the month, should they have their olds course notes to hand to help them follow the plot, or do they earn more personal wealth by following the trends.

If there needs to be cuts, just think how much money could be saved by the removal of politicians from the costs (650 at £69,000, plus ministers and shadows on extras, 100 at £80,000, plus expenses 650 at £150,000, plus 2,000 admin. staff at £40,000, plus 40% on-costs) thats £322bnpa saved. Now the BBC license fee, at £145.44pa, and its contribution to a plethera of economic/political/news correspondents each earning in excess of £90,000pa, plus the camera crews who have to record them standing in appropriate environments stressing their relevance to the topic in hand - that has got to cut the fee by at least 10 or 15%. See when you really apply yourself you can find more relevant cuts to taxpayers costs than social welfare. But then, where will the 7% of the population, who attend private schools, be employed, especially as George is intimating a reduction in expenditure on the military and civil service, let alone the foreign and secret service. I know, with theie excellent educational background they can all become excellent teachers in the remnants of "state education" left by Mr Gove, at obviously greatly reduced salaries.

60. At 3:24pm on 14 Jun 2010, Kit Green wrote:
55. At 2:40pm on 14 Jun 2010, Heinrich_Friedrich wrote:
A bit off-message, but can anyone explain why the Swiss National bank purchased a staggering 55 bln Euros in May - this sounds like a significant event in the current climate!
----------------------------------------
The Swiss are trying to prop up the euro to slow the rate of wealth looking for safety in Swiss banks as too strong a currency is not good for their economy.
-----------------------------------------
Kit Thanks for this - I understood that this was linked to their QE activities. So in this instance the Swiss banks would appear to be providing an interim safety net for the Euro on the face of it at least, and perhaps not entirely intentionally and maybe a bit more to it?. Are there potential problems for the Euro down the road associated with this I wonder?

at 58


debt as a % of GDP since 1978

Conservative highest % of debt was 1982 44%
Labour Highest % of debt 2008 36%
% when conservatives took over from when Labour “bust” the country in 1978 46%
% when labour took over from conservatives after 18 years of cuts, underfunding and the sell of all British assets 41%

Conservative average % of national debt during term 38%
Labour average % of national debt during term 34%

highest ever % of national debt was 1945/46 at 214%, and during the following 5 years the NHS was introduced, council housing programmes introduced, nationalisation of rail and transport, banking and energy, pensions and social security introduced,and the nation was put to work for one purpose, the people of this country.

63 What I have seen all around me is a massive downer in the mindsets of millions of people, inflicted by the Jonahs of Downing Street solely for political pointscoring.
"Make it all look terrible so we don't look bad", is all they have to say.

Trouble is, gloom is a contagious disease.

And that ain't no way to run a successful economy.

GUN,BULLET,FOOT........ Taxi for George!

Are the OBR predictions significantly different from those made by Mr Darling ( margins of error on calculations made with what must be soft data are not provided).

Ask yourself this.....if you had a few million quid to invest in a UK project, would you be more likly to do it as result of ? ....

1. 40% CGT .....thanks George.
2. An extra half a million projected extra unemployed SINCE the Tories came into power......thanks George.
3. Reduced Business Confidence.......thanks George.
4. Mistimed shrinkage of service sector on lifeline public sector contracts while private sector in doldrums...... thanks George.

Thanks, but no thanks, George.

I could go on , but really, it is not like me to feel depressed.
So I hope and pray and believe we will manage an Economic Recovery in spite of Torydem efforts.

#32. Henry Quimper

The problem with any forecast is that the criteria and interpretation used will be influenced by both the politics and the working and cultural background of those both leading and working on the forecast. Hence the figures produced today will have suffered from those influences despite what is claimed about independance.

2

Don't forget that inflation being high will make 'growth' hugh as well (well, relatively)

55. At 2:40pm on 14 Jun 2010, Heinrich_Friedrich wrote:
A bit off-message, but can anyone explain why the Swiss National bank purchased a staggering 55 bln Euros in May - this sounds like a significant event in the current climate!


They are trying to support the Euro...unfortunately they failed...

P.s those debt % are excluding the the years of the banking crisis>>>>

The reason being, that if the exchange rate between the Swiss Franc and the Euro drops too far below 1.30 it will in all probability cause deflation..

The Euro is a dead duck

Oh dear, doing the math isn't my strong point (post 26 above).

Given a GDP of £1400Bn and therefore a AAA threshold of £140Bn (10%) then with a current debt servicing level of £42Bn pa, we would seem to have to go quite a long way before this is breached.

Even Dave's dire warning of a debt servicing of £70Bn pa in five years does not seem quite so bad, assuming GDP does not collapse.

There's only one thing for it, in the immoral words of pools winner Viv Nicholson - spend, spend, spend.

52. At 2:33pm on 14 Jun 2010, DevilsintheDetail wrote:

"51 posts and no KevinB
Was it all a bad dream ? "

he's busy telling other people how they are WRONG on the other side - and yet strangely failing to explain why without using the phrase "in my opinion...."

70

I think you will find that the debt was even higher than that a couple of centuries ago

What we don't know is everything that the Treasury have and the OBR have seen:

1) Is the '2.6% growth' rate estimate for 2011 dependent on interest rates remaining at their historic low?

Essentially, if UK interest rates rise ('significantly' and even a quarter or half a per cent could be significant?) during the next few years, then all the growth forecasting must surely need further, more and better revision ... unless assumed increases in interest rates are built into the figures? Have I missed anything on this ... I've heard nothing on interest rate levels and the growth rates are themselves significantly dependent on UK interest rate levels

Has anyone got anything better on this?

2) Is the '2.6% growth rate' dependent on further and significant QE?

3) I keep hearing the BBC (BBC1 news) to be now in absolute dismay that the OBR is to try and give accurate figures on growth and not massage the figures like with Labour - Does the BBC accept our previous UK government's giving of false figures on this as being normal and acceptable behaviour.

Anyway what a surprise... Brown lied... Darling lied .... Balls lied ... on 'growth', or rather the lack of it ... Oh What a surprise!

There is still a lot of detail that must surely still be concealed here ... even if the process is now more transaparent as opposed to Labour government fraud.

Sorry to all the tories on here today but it does seem Darling had it right,yes its a bad situation but then again the rest of the world is in the same mess,Osbourne seems clueless as to what to do other than get Clegg and the hapless Libdem cronies to deliver the bad news about tory idealogical driven cuts

When the next election i do fear the libdems will but extinct in parliment not good news for a democracy.

As others have said this isnt 1979 and this coalition should be aware of that and not drive home damning cuts when a softly,softly approach to cutting certain things would suffice

78. At 5:01pm on 14 Jun 2010, Kevinb wrote:
The reason being, that if the exchange rate between the Swiss Franc and the Euro drops too far below 1.30 it will in all probability cause deflation..

-------------------------------------------------

I brought this up, because it was a major event, but not clear on all the consequences and perhaps I have missed something, but don't remember any mention on any BBC business links - could be wrong.

81

Ho, ho ho

What a funny man you are

6hrs 11mins before it whent down hill!! Is that a record?

At 10:51am on 14 Jun 2010, leftie wrote:

In short, GROWTH remains the main answer to the UK deficit.
The danger is that government doomster rhetoric will adversely affect business confidence. Lowering business confidence will talk down the investment component in future GDP growth.
It's time the government stopped denigrating British economic prospects.
A lot less exagerated doom and gloom from Ministers and the Media would be favourite just now.
----------------------------------------------------------------------
Some US institutes are already talking of contagion in the UK after Cameron's "its worse than I thought" speech and recommending suggested trade strategies to US traders...Weiss Research for one. So your comment is correct about talking economy down.

I don’t remember Nick or Dave complaining about the last labour government’s spending before the economic down turn… talk about rewriting history.

So it's almost the same as the last forecast and I guess within confidence limits of both. Perhaps folk don't know that Sir Alan Budd has presided over some interesting times in government - senior advisor to the Treasury 1970-74 and 91 to 97 Chief Economic Advisor to the Treasury. Now when was Black Wednesday - Sept 1992. He is also currently senior advisor to Credit Suisse First Boston and board member of IG Group. So I guess "independence" could be questioned just a little.

80. At 5:04pm on 14 Jun 2010, JohnConstable wrote:
Oh dear, doing the math isn't my strong point (post 26 above).

Given a GDP of £1400Bn and therefore a AAA threshold of £140Bn (10%) then with a current debt servicing level of £42Bn pa, we would seem to have to go quite a long way before this is breached.

-------------------------------------------------------------------------
The US is on the brink of a close scrutiny of the pricipal ratings agencies. They have not been forgiven for their triple A ratings of the recent scandalous mortgage lending debacle. So they may have to rate their ratings down under Government pressure...

85

BBC don't report that much of this sort of thing............It is estimated that it cost £6bn Euros, and flopped

Pretty expensive stuff!

Lower projected growth figures given by the OBR, will give the new fangled conservative government the overall concensus to drastically cut public spending and push through more privatisation [shock docterine tactics] in order to reduce the deficit.

67 Chestham

Just a reminder, this is an economics blog and not an excuse to peddle low brow socialist fiction. The vast majority of readers (if not the bloggers) are far too intelligent to believe any of it.

68 honestgeraldinho

A very long post which seemingly says nothing. Then you finish with this gem;

"If there needs to be cuts, just think how much money could be saved by the removal of politicians from the costs (650 at £69,000, plus ministers and shadows on extras, 100 at £80,000, plus expenses 650 at £150,000, plus 2,000 admin. staff at £40,000, plus 40% on-costs) thats £322bnpa saved."

That's the deficit solved. Lol. Maybe you should leave economics to the grownups.

53. At 2:35pm on 14 Jun 2010, onward-ho wrote:

Can the people of England please, please try to ignore the incompetents they have elected and let the country get on with it?
----------------------------------------------------
The nation is in crisis and you start talking football?!

84 Dawy

"Sorry to all the tories on here today but it does seem Darling had it right,yes its a bad situation but then again the rest of the world is in the same mess,Osbourne seems clueless as to what to do other than get Clegg and the hapless Libdem cronies to deliver the bad news about tory idealogical driven cuts"

What exactly did AD have right? The fact that we were in the worst recession for 60 years. The only Labour figure to be 100% correct is Liam Byrne- 'There is no money left'. I also make idealogical driven cuts to my own spending. I tend not to spend more than I can afford also. Unfortunately, I can't borrow money from future tax revenues to enjoy the lifestyle I really want, but I try to make do.


This is a general comment. All the lefties have posted today is how biased the OBR is because they don't agree with AD's (completely objective and beyond reproach of course) projections. I think we need to wait and see how effective they are going to be at holding the government to account and how independent they turn out to be. Have a break guys. We'll catch up in a few years when they will actually have a track record with which you can be judgemental.

#94 Dr_Doom

I look forward to reading your admonition of some of the more right wing tripe that also appears on these pages!

89 KillerKally

"I don’t remember Nick or Dave complaining about the last labour government’s spending before the economic down turn… talk about rewriting history."

That is a bad case of 'selective memoryitis'. GB suffered from it something rotten as he kept on rewriting his 5 golden rules.

Labour said at the election that we should wait for a sustained recovery before making cuts. The Tories said we should cut now and make deeper cuts. The electorate have now spoken so will have to take George's medicine.

Which made the best forecast really does not matter now. What matters is the depth of the cuts inflicted and the effects they cause. Either way the Tories get the credit and the LibDems get the blame, which, judging by the amateurish performance of Danny Alexander on C4 just now is probably fair.