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Daily View: UK's economic forecast

Clare Spencer | 08:51 UK time, Tuesday, 15 June 2010

OBR chairman Sir Alan BuddCommentators discuss the new official forecasts produced by the Office for Budget Responsibility.

Faisal Islam from Channel 4 News predicts the this will bring unexpected problems for the coalition:

"Clearly there are two ways to look at this: the deficit is beginning to sort itself out, and it is time to make the already implied degree of cuts more credible (Labour's position). Or the economy is strong enough to warrant an even more savage axe (the Conservatives)...
"The good news for Mr Osborne is that the improvement in the deficit numbers may obviate the need for an unpopular VAT rise. The bad news is it turns down the temperature a little on the need for a much faster rate of deficit reduction.
"The independent budget experts have unexpectedly presented the chancellor with some problems."

Fraser Nelson says in the Telegraph that, to the Tories' dismay, "something is going badly right":

"The new Office for Budget Responsibility (OBR) was intended by the Tories to be an authoritative, independent voice telling the truth about Britain's public finances. It would demolish the economic Potemkin Village that Gordon Brown built during his time in Downing Street and reveal the full extent of his fiscal vandalism. Against such a backdrop, a Tory chancellor would be seen to have no option but to make harsh and deep cuts. He would create a new economic guru - Sir Alan Budd - who would lead the OBR and give advice that the Chancellor would have little choice but to heed.
"It would have been a fine plan, had the British economy not started to recover."

The Daily Mail editorial rejoices that "realism takes hold in Whitehall":

"True, the OBR's figures make uncomfortable reading, with their forecasts that growth will be significantly lower and the structural deficit higher than predicted in Labour's last Budget.
"And, yes, they make it clear that sharper cuts will be needed if we're to avoid a £67billion bill (more than we spend on schools) for debt interest alone by 2015.
"But after years of rose-tinted Treasury forecasts, the independent OBR offers real hope of new honesty, on which alone responsible decisions can be based."

In the Guardian Adam Lent says that basing major spending decisions on OBR forecasts that may well prove wrong is a risky business:

"[T]he Treasury and the OBR could find themselves locked into a strange dance of death if policymakers become too obsessed with eliminating the structural deficit. By downgrading growth forecasts, the OBR has made the structural deficit look bigger. On the government's logic, this means that there is an even greater need to cut urgently and to cut deeper."

In the Times Rachel Sylvester says she looks forward to Cameron's "audacity of despair":

"Gordon Brown has a reputation as a gloomy curmudgeon who sees a cloud hovering around every silver lining. David Cameron is seen as a sunny optimist, always keen to look on the bright side of life. The Labour man is portrayed as Eeyore to the Conservative leader's Tigger, Lennon to his McCartney, Picasso to his Matisse.
"In fact, on the economy, the opposite is the case. Yesterday's report from the new Office of Budget Responsibility (OBR) shows that Mr Brown was consistently and conspicuously over-optimistic about the speed at which the economy would grow. The central forecast for 2011 is now 2.6 per cent, rather than 3.25 per cent in Labour's last Budget...
"Mr Cameron, by contrast, is obsessed by the size of his deficit. When he looks at the growth forecasts he sees a glass that is half empty rather than half full. When he considers the borrowing bill he sees a glass overflowing with toxic debt. His aim is to rethink the size and scope of the state, a philosophical as much as a political exercise. He has neither desire nor motive to talk up the economy - in fact it is in his interest to make things look as dire as possible now so that he can blame someone else and offer a solution himself."

Chris Giles from the Financial Times looks at [subscription required] the role of the newly formed office:

"If there was one message that emerged in capital letters from the new official forecasts produced by the Office for Budget Responsibility it was that Britain is not Greece...
"The OBR had nothing to say about that calculation. Its job is technical and Sir Alan and his committee were trying to keep it that way. Sir Alan's politically neutral discovery that Britain was not Greece and that the forecast changes are things over which reasonable people can disagree will, for now, help him stay out of party politics."

Links in full

Faisal Islam | Channel 4 News | Economic forecast brings unexpected problems
Adam Lent | Guardian | The self-fulfilling deficit spiral
Fraser Nelson | Telegraph | This budget is George Osborne's moment to be radical
Daily Mail | At last, realism takes hold in Whitehall
Rachel Sylvester | Times | Cameron offers us the audacity of despair
Chris Giles | Financial Times | Official verdict is that UK is not Greece

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