Will Straw details what to expect from tomorrow's OBR figures on growth, why they're likely to be lower than predicted, and how that affects Osborne's plans to continue his austerity programme.
Tomorrow at 9.30am, Britain will find out how fast its economy grew in July, August and September – the third quarter of this year. The pace will have to be faster than at any time since Labour was in office if growth is to meet the projections set out by the Office of Budget Responsibility (OBR).
On Saturday evening, shadow chancellor Ed Balls released a statement which set out what growth was needed:
“Simply to stay on track for the Office for Budget Responsibility’s most recent forecast, already downgraded three times, we will need to see growth in the third quarter of 1.3 per cent. And to reach the OECD’s latest and more pessimistic forecast, we will need to see a figure next week of 0.9 per cent.”
The reasoning is simple. After the March Budget, the OBR revised their growth projections down to 1.7 per cent for 2011. (They had initially predicted in June 2010 that growth would be 2.6 per cent.) But with growth in the first two quarters of the year hitting just 0.4 per cent and 0.1 per cent respectively, the quarterly figure will have to be higher than at any time since the recession started for the OBR to stay on track. The fastest the economy has grown since going the recession started was 1.1 per cent during the second quarter of 2010 when Labour was last in power.
Industry expectations are for growth in 2011 of a meagre 1.0 per cent implying that growth in Q3 and Q4 will average just 0.4 per cent. But the Bank of England said recently that growth in the fourth quarter would be “close to zero” suggesting that a higher score may be needed in Q3 even to reach 1.0 per cent.
Looking ahead to 2012, the OBR still expects growth to rebound to 2.5 per cent but not a single independent forecaster now expects growth at that level. The average prediction is for growth of 1.5 per cent. Citigroup, Scotia Capital, and the Centre for Economics and Business Research are most pessimistic and think growth could be as low as 0.7 per cent.
Tomorrow’s new figures will feed into the OBR’s latest growth projections to be released on November 29th. That afternoon, George Osborne will present his Autumn Statement to the House of Commons and explain what impact his austerity programme, low consumer and business confidence, and the problems in the eurozone have had on growth and borrowing.
The new scrutiny on George Osborne’s economic strategy comes as a group of leading economists wrote to yesterday’s Observer calling for a Plan B. IPPR first set out the case for a Plan B in March this year with ideas for economic growth set out in the ‘Going for growth‘ publication in February.
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• With Plan B, we can have a good economy for a good society – Howard Reed, October 31st 2011
• Nine economists tell George Osborne how to fix the country – Alex Hern, October 13th 2011
• Osborne’s economic policy is to stick his head in the sand – Emily Thomas, October 12th 2011
• Will quantitative easing work this time? – George Irvin, October 9th 2011
• Barroso joins the international push for Plan B – Alex Hern, September 28th 2011