Monday, June 14, 2010
The OBR's forecast - transparent, detailed and no horror story
Posted by David Smith at 10:30 AM
Category: Thoughts and responses

The keenly awaited pre-budget forecast from the Office for Budget Responsibility has been published. As you'd expect from the people involved - Sir Alan Budd, Geoffrey Dicks and Graham Parker - it is a sensible forecast. While it has reduced the growth numbers the Treasury used in the March budget, the OBR predicts a decent recovery - 2.6% next year, after 1.3% this year, rising to 2.8% in 2012 and 2013, before slipping back to 2.6% in 2014. This is forecast most people would be happy with.

True, the OBR has cut the estimate of trend growth to 2.35% (falling to 2.1% from 2014 onwards), compared with the 2.75% used by the Treasury (2.5% for the purposes of the public finances) but its overall forecast, admittedly with a much-stressed margin of great uncertainty illustrated by fan charts, is benign. The economy rebalances away from excessive reliance on consumer spending and government and towards exports and investment. Employment grows. Unemployment peaks soon at just over 8%, then falls back. House prices grow modestly. The likely criticism of the OBR's forecast will be that it is too optimistic, not excessively gloomy.

As for the public finances, this is also a better story than feared. The numbers for net borrowing throughout the forecast period are lower than presented by the Treasury in the March budget, giving substance to Alistair Darling's claim that there was no basis for David Cameron's claim that the public finances were in an even worse state than thought.

Its numbers for borrowing are, going forward from this year, 155 billion, 127 billion, 106 billion, 85 billion and 71 billion. The Treasury's March numbers were 163 billion, 131 billion, 110 billion, 89 billion and 74 billion. The difference is in the structural deficit, where the new numbers, expressed as percentage of GDP, are 8%, 6.1%, 4.7%, 3.5% and 2.8%, while the old ones were 7.3%, 5.3%, 4.1%, 3.1% and 2.5%.

Remember these numbers do not include the 6 billion of cuts announced for this year by the new government, or any other changes promised in the coalition agreement. Remember too that the government will probably want a number significantly lower than a 2.8% structural deficit by 2014-15. Even so, sensible, not scary. There's a lot more to read in the document, which is here, but that's my first take.