But there's good news on public borrowing.
This morning saw the first official missive from what could be a key new government body, the Office for Budget Responsibility (OBR).
Headed up by Sir Alan Budd, the idea is the OBR will take the politics out of forecasting the public finances, and also act as an independent auditor of the Government's fiscal decisions. Some are even comparing the arrival of the OBR with Labour granting independence to the Bank of England in 1997.
Yet given the straitened times we live in, I suspect it wasn't a champagne moment in Whitehall when the OBR took to the stage this morning. Perhaps more plastic cups from the water cooler.
Budd wiser, Darling?
For its part, the OBR hasn't wasted any time in pouring cold water over the near-term outlook.
In today's pre-emergency budget forecast -- based on inherited figures, and so not taking into account anything the Coalition government has decided -- the OBR downgraded GDP growth expectations in the UK for 2011.
Its central forecast is for 2.6%. In contrast, Labour was looking for 3% to 3.5%
Budd on a brighter note
Yet despite this gloomier prognosis for the economy, I doubt Chancellor George Osborne yet regrets setting up the OBR. Quite the opposite -- the lowered growth outlook means the government will expect to collect less tax, which in turn justifies the big cuts expected to come in his emergency budget next Tuesday.
For now it's plausible to blame the previous administration for economic weakness, debt, and any leaks in the national kitchen sink, and Osborne won't miss the opportunity to do so, especially with his new, unbiased government body doing the predicting.
Yet look beyond the 2011 downgrade, and Sir Alan Budd's team is actually quite positive:
- the public deficit isn't as bad as we thought, it says, at 10.5% of GDP against the previous 11.1% estimate;
- the forecast for public borrowing over the current year is £155 billion, down from £163 billion; and
- total net borrowing will be £23 billion lower over the next five years, at £544 billion
These are still vast sums of money -- if the outlook for government borrowing looks slightly brighter, then it's from the perspective of the frying pan as opposed to the fire.
Yet it's interesting how quickly the situation is changing, largely on the back of higher than expected tax receipts.
Growth is good
Beyond next year, the OBR estimates:
"Trend output will grow at just over 2.5% over the next three years, slowing to just over 2% from 2014 as demographic changes reduce the growth of the potential labour supply. From 2011 onwards, GDP is expected to grow at an above-trend rate as the economy rebalances away from consumption towards investment and net exports. Towards the end of the forecast, GDP growth eases back in line with lower trend growth."
Yet despite higher-than-trend growth, the OBR expects inflation to be tame, with CPI inflation bumping about before hitting target by the end of 2012.
Again, I think this is a pretty positive picture. It's true that Labour had forecast growth in future years of around 3.5%, but it was accused of donning rose-tinted spectacles to do so. If the OBR really is unbiased, then it's surely significant that it not only foresees no double dip recession, but it is actually looking for above-trend growth over the next couple of years.
Incidentally, is the UK stock market reflecting this relatively buoyant outlook? I don't think so. The FTSE 100 is on a forward P/E of just under 9 for 2011 (give or take the oil spill factor!). And smaller cap companies and REITs with greater UK exposure were hit even harder in the recent falls.
Future tense
When he first announced the OBR, George Osborne thanked Sir Alan for agreeing to take charge of the OBR, then joked: "Whether I thank him again in a couple of years' time is another matter, but that is the whole point." Too right.
The truth is economic forecasting has a murky track record. Who knows whether by 2014 we'll really be enjoying the 2.6% GDP growth the OBR predicts today. Politicians being politicians, Osborne will be less troubled if the economy is over-heating. But if the economy is doing worse than the OBR now expects, I imagine Osborne will rue giving up the opportunity to massage the figures ahead of the 2015 General Election.
Indeed, with the Bank of England setting interest rates and the OBR officially predicting where the economy is going and holding the Government to account if its policies don't fit with that outlook, UK chancellors now operate in a very different reality to when a Tory was last at the dispatch box.
At least George Osborne hasn't abolished the ancient right of Chancellors to have an alcoholic drink when he delivers a budget. With the OBR looking over his shoulder, he might yet need it!
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