The Budget was a non-event. The real story is the worsening forecasts
Yesterday’s Budget was a non-event in policy terms. The real news came in the changes to the economic forecasts of the independent Office of Budget Responsibility.
Despite Osborne hailing ‘a Budget for Growth’, OBR growth forecasts were revised down for last year, this year and next year.
Unemployment was revised up and is now expected reach over 8% this year. Alongside this inflation was revised up and average earning growth down. In other words prices will rise faster than expected, and wages slower – meaning the squeeze in living standards is set to intensify in 2011 and 2012.
The downward revisions to UK economic growth came despite the OBR revising world economic growth upwards – Osborne’s spending plans will continue to crimp UK economic performance.
The impact of all this on the deficit was predictable. It was revised upwards, with the government now expected to borrow an additional £45bn over the coming years.
Osborne’s ‘growth package’ – a further cut in corporation tax, some relaxation of planning laws and the creation of 20 1980s-style ‘enterprise zones’ – is unlikely to have a major impact. The OBR concluded that the effects of these measures would be ‘minimal’ and ‘unlikely’ to raise the trend growth rate of the UK economy. Despite this they were widely praised by many in the business community – but then who doesn’t like a tax cut?
This morning the credit ratings agency, Moody’s, warned that slower growth combined with ‘weaker-than-expected fiscal consolidation’ could put the UK’s AAA credit rating at risk. In other words, Osborne might be stumbling into exactly the situation he tried to avoid.
The outlook for the economy just got darker – and Osborne’s response sheds no light.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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