UK will lose fewer public sector jobs, says OBR

Hospital ward The OBR now expects a far smaller number of public sector workers to lose their jobs

The independent Office for Budget Responsibility (OBR) says public sector job losses will not be as high as previously thought.

The OBR now expects 330,000 public sector workers to lose their jobs over the next four years, far fewer than the 490,000 it forecast in its June report.

At the same time, it raised its estimate for economic growth this year, from 1.2% to 1.8%.

But it lowered its growth estimates for the next two years.

The OBR indicated that economic performance next year would be growth of 2.1% - down from its previous 2.3% forecast; and 2.6% in 2012, down from the 2.8% previously pencilled in.

There were further relatively positive predictions on jobs, with a forecast that, after a peak of just over 8% unemployment in 2011, the rate would fall steadily to just over 6% by 2015.

The OBR said it had changed its public sector job forecast because the government had put more emphasis on benefit cuts and less on departmental spending cuts than it had expected at the time of its earlier forecast.

Analysis

The biggest news is the big reduction in the job losses forecast in the public sector between now and 2014-15. The OBR now thinks the public sector workforce will shrink by 330,000 over that period, not 490,000, though they expect another 80,000 to lose their jobs in 2015-16.

Mr Osborne will be pleased by the very modest change in the borrowing forecasts, though the OBR expects tax revenues to be £2.4bn lower than forecast by 2015-16, and it now thinks that he will only save £9.6bn from the extra welfare cuts in the Spending Review, about £1bn less than he hoped.

Bad news for homeowners. The OBR thinks house prices will fall by 3.1% in 2011. Previously it had expected a small rise.

Read Stephanie's thoughts in full

The government-appointed body's chairman Robert Chote also said that the creation of one million private sector jobs in that time would "more than offset" falling public sector employment.

The Chartered Institute of Personnel and Development, which has forecast a much higher reduction in public sector jobs, said the picture painted by the OBR differed from reports it had received from "managers on the ground".

But its chief economist added: "If employment, unemployment and average earnings follow the path forecast by the OBR the 'era of austerity' will be felt more in workers' pockets and living standards than in terms of lost jobs," John Philpott said.

"As such the OBR forecast is most encouraging but it is still too soon to conclude that a rosy outlook for jobs is a dead cert."

'Slower recovery'

The OBR said the impact of government measures to cut the deficit, which include an increase in VAT from the current 17.5% to 20% and the £81bn of planned spending cuts would lead to "sluggish growth" in the medium term.

A statement from the body said: "The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s."

Mr Chote told reporters that the government's plans were consistent with sustaining an - albeit slow - economic recovery, although he warned such predictions were never assured.

"There is considerable uncertainty around any economic forecasts," he said.

The chief economist at the Institute of Directors, Graeme Leach, said the forecast was somewhat rosy.

"The OBR's 2011 growth forecast still looks a bit optimistic even after the downgrade," he said.

"We face very strong headwinds next year. Real take-home pay faces a sharp squeeze and the savings ratio is already very low."

'Unprecedented gamble'

OBR chairman Robert Chote: ''We expect the economy to continue to recover''

Mr Chote stressed the independence of the OBR's views, which has previously been questioned, saying: "We have not come under any pressure from ministers or their advisers to change any of [our forecasts]".

Mr Osborne responded to the OBR's updated forecasts in his Autumn budget statement.

The chancellor said the findings endorsed the coalition government's policies: "The OBR has confirmed that the British economic recovery is on track and Britain is on the mend".

But Labour's shadow chancellor, Alan Johnson, said the report did not give the government a firm vote of confidence.

The government, he said, was taking "an unprecedented gamble with peoples' livelihoods and the country's future".

The OBR was formed by the coalition government in May and is intended to make an independent assessment of the public finances ahead of each Budget.

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