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.”
38 Responses to “Falling growth means “government will miss deficit reduction target””
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.
Staffordshire UNISON
RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …
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
David Kirkham
RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …
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