Falling growth means “government will miss deficit reduction target”

A leading economic think tank has warned that falling growth means government will miss its deficit reduction target. They predict growth in 2011 of 1.4%.

A respected and independent think tank has predicted that growth in 2011 will be as low as 1.4 per cent – almost half the level originally predicted by the Office of Budget Responsibility in June 2010. The National Institute of Economic and Social Research predict that inflation will be up in 2011, tax revenues will be down, and the government will miss its deficit reduction target to balance the cyclically-adjusted current budget by 2015–16.

A press release from NIESR outlines their prediction that:

“GDP will grow by 1.4 per cent in 2011 and 2 per cent in 2012…

“Not until 2013 will the economy grow faster than its trend rate of 2.1 per cent. Growth this year will be constrained not just by the government’s spending cuts but by the squeeze on households from higher taxes and rising inflation. Consumer price inflation will reach 4.5 per cent this year, up from 3.3 per cent in 2010″

The chart below compares NIESR’s current estimate with successive predictions for 2011 growth by the Office for Budget Responsibility. The OBR have revised down the projection for 2011 growth three times since they published their first estimate before the Budget in June 2010.


The OBR were off track again last week when growth for the first quarter of 2011 came in at 0.5% – below the 0.8% they had predicted after the Budget. And there was more gloomy economic news this week with both construction and manufacturing slowing sharply in April. As respected economic commentators such as Martin Wolf and Robert Skidelsky have warned, lower growth impacts the Government’s ability to close the deficit. In line with this analysis, NIESR’s press release predicts that:

“The weak recovery will feed through to lower tax revenues. That will mean that even if the spending plans are met over the next four years, public sector net borrowing will fall only to 3.6 per cent of GDP in 2015–16 rather than the 1.5 per cent projected by the Office for Budget Responsibility. Likewise, the current budget will then run a deficit of 2.2 per cent of GDP compared with the OBR’s surplus of 0.2 per cent. We do not expect the government to meet its target to balance the cyclically-adjusted current budget by 2015–16.”

Angela Eagle MP, Labour’s Shadow Chief Secretary to the Treasury, said in response to the latest forecast, “NIESR is right to warn, as Labour has, that slower growth will mean lower tax revenues and so make it harder to get the deficit down.”

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38 Responses to “Falling growth means “government will miss deficit reduction target””

  1. Frances Coppola

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  2. Shamik Das

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  3. Alex Belardinelli

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  4. House Of Twits

    RT @leftfootfwd Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  5. Matt Jeffs

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  6. Wimbledon Labour

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  7. House prices ‘will keep falling for five years’ – The Guardian | DavnecNews

    […] prices 'to fall for the next five years' in longest property slump for a …Daily MailLeft Foot Forward -Forexyard -IMarketnews.comall 12 news […]

  8. SlashedUK

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  9. Iain Simpson

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  10. Trakgalvis

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  11. BenM

    Does anyone believe anything spewed out by Osborne’s mega-QUANGO?

    Get the daft rightwing indulgence abolished after the next election.

  12. SlashedUK

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  13. Will Straw

    Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf

  14. Brian O'Rourke

    RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf

  15. House Of Twits

    RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf

  16. David Ward

    RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf

  17. A bloke from Norwich

    RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf

  18. Mr. Sensible

    This shows more evidence that the government’s approach is hurting but not working.

  19. Anon E Mouse

    Will Straw – But not a “Double Dip” recession as Labour activists predicted since the election.

    No wonder Ed Miliband is the least popular of the three party leaders…

  20. False Economy

    RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #falseeconomy

  21. Midlands TUC

    RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …

  22. Derek Bryant

    RT @FalseEcon RT @wdjstraw Coalition warned that falling growth mns they'll miss deficit reduction target http://bit.ly/k8LHmf #falseeconomy

  23. artuncut

    RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …

  24. Jill Hayward

    RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …

  25. Kevin Fenning

    RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf

  26. scandalousbill

    Anon,

    I would not be so quick to say the UK economy is out of the woods as of yet. The disappointing growth figure of GDP occurred with interest rates at 0.5%. With the risk of inflation, rates are bound to rise and the economy will be impacted.

    Secondly, for the Tory coalition’s much touted business miracle to occur, you would expect business investment levels in the UK to be on the up, as this article by Brian Groom indicates, that has not been the case to date, and in fact there is a decided decline.

    http://www.ft.com/cms/s/0/4d544786-69e5-11e0-89db-00144feab49a.html#axzz1LSotCEY6

    These factors combined with other serious issues, such as the Global price of oil as the coalition cutbacks begin to take hold in the economy, IMHO, mean it hardly time yet to strike up the band in celebration.

    The risk of a double dip recession cannot be dismissed out of hand at this point in time.

  27. Staffordshire UNISON

    RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …

  28. Howard Jackson

    Good week for Cameron but fall is due. Prediction the deficit reduction target will be missed. Back to reality. http://t.co/uvLk1Tu

  29. David Kirkham

    RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …

  30. zenix

    Of course what these predictions completely miss is that even if economic growth were to be at 0% for the next 4 years, the economy would still be getting better regardless. They forget that every day, the deficit is being reduced. Every day, the government finances are getting stronger. So, even if we had zero growth the economy would be getting better because we’d have the same amount of GDP, but a lower deficit. The same amount of GDP, but better public finances. the same amount of GDP, but a stronger private sector. The same amount of GDP, but a stronger, more dynamic economy. As long as the economy doesn’t contract then the govt. are doing the right thing, and with growth expected to be more than 1% this year that suggests that they aren’t close to throwing us into another recession just yet. http://bit.ly/jIhDjS

  31. Anon E Mouse

    scandalousbill – I don’t believe this government will cut anything like they say – Thatcher never did despite the rhetoric.

    What I would say is that you and I regularly have this conversation and so far I’ve been right every time.

    No serious economist ever predicted a double dip recession so I’m going with them…

  32. scandalousbill

    Anon,

    When you say:

    “I don’t believe this government will cut anything like they say…”

    It certainly seems that you believe that the “too fast, too deep” position is correct. Are you now advocating that Osborne should develop a Plan B? Especially when things are going so well?

    BTW, Dr Nouriel Roubini is one of the prominent economists, among a few, who has expressed concerns that there is a significant risk of double dip recession.

    http://www.guardian.co.uk/business/2011/mar/11/roubini-double-dip-recession-warning

    Of course, as he has been credited by many with predicting the global credit crunch, I guess he cannot be considered a serious economist.

  33. Anon E Mouse

    scandalousbill – I think that the government should cut harder and faster to clear our debts – to run an interest payment of £120 million a day is unacceptable.

    Regarding what this government is doing I just don’t believe they will cut like they say. There doesn’t need to be a plan B – plan A is fine I think.

    As for Dr Nouriel Roubini clearly he is wrong on the double dip so he can’t be that good I feel.

    The sooner Labour supporters realise they are getting no traction on this point and apologise for the mess they left us in the better…

  34. scandalousbill

    But Anon,

    “I think that the government should cut harder and faster to clear our debts”

    Would not increasing the depth and rate of spending cuts be against the advice of most “serious economists” like those from the OECD?

    The point Will makes in the article is the impact of stagnant growth in undermining Osborne’s objectives. Would not taking more out of the economy provide additional fetters to the already anaemic recovery?

  35. Mathew

    Anon

    Do you even believe anything you type?

    Ever heard of the Paradox of Thrift?

    How would you of countered reduced consumer confidence?

    Do you understand a fiscal multiplier?

  36. Daniel Pitt

    Falling growth means government will miss deficit reduction target http://t.co/uvLk1Tu #ConDemNation

  37. damon brown

    oh yawn, the troll’s back with his big poky stick again, scuppering all attempts at actual conversation with his moronic drivel.

    You neo-con’s must lead such empty lives if this is the only entertainment you can find.

  38. Will Straw

    @ian_bath Wrong. Cuts that go too far and too fast = low growth = rising deficit = more cuts. http://bit.ly/jgOLoX

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