George Osborne’s lack of a growth strategy could easily undermine his deficit reduction plans, writes Duncan Weldon.
Today’s public sector borrowing figures (pdf) won’t make for cheery reading at the Treasury. Borrowing came in at £14.0 billion in June 2011, up from £13.6bn in June 2010. Cumulative borrowing in the first three months of the financial year 2011-12 now stands at £39.2bn, only a fraction down on 2010-11 despite the beginning of spending cuts and tax rises.
The early indications are that George Osborne’s changes in fiscal policy are not bringing down the deficit. Rather than looking at the volatile monthly series, it is worth taking a moment to look at the quarterly deficit figures:
The prospects now for Mr Osborne meeting his borrowing target of £122bn for 2011/12 (as forecast (pdf) by the Office for Budget Responsibility in March now look weak. The OBR forecasts are premised on growth in 2011 of 1.7% but the Treasury’s own latest round up of independent forecasters (pdf) suggests growth will actually be 1.3% – which would no improvement at all on 2010.
If in autumn the OBR is forced to revise down its growth forecast it will have no choice but to also revise up its borrowing forecasts. In March this year the OBR revised down its 2011/12 and 2012/13 growth forecasts by 0.3% – it then had to revise up borrowing for those two years by £14.3bn (i.e. by more than the VAT rise raises annually).
If the OBR has to revise down 2011 growth by 0.4% or more then the impact on the deficit could be even larger. Mr Osborne’s lack of a growth strategy could easily undermine his deficit reduction plans.
Leave a Reply