Austerity measures may have damaged growth in the British economy more than originally assumed, said the Office for Budget Responsibility (OBR), the government’s independent economic forecasting body.
In its Forecast evaluation report (FER) released today, the OBR said: "Fiscal consolidation may also have done more to slow growth than we assumed."
However, spending cuts and tax increases were not the only reason for the OBR's forecasts falling short of the mark.
“Along with many other forecasters, we significantly overestimated economic growth over the past two years,” the report said.
"This likely reflected several factors, including the impact of stubborn inflation on real consumer spending, deteriorating export markets on net trade, and impaired credit conditions, euro area anxiety and demand uncertainty on business investment.
Chancellor George Osborne has come under pressure ease back on austerity. The International Monetary Fund earlier this month warned him that he risked further damaging the economy unless the pace of austerity slowed and he faced up to the country’s “growth challenge”.
The world’s economic watchdog also slashed its forecast for UK growth, in its sharpest downwards revision for any advanced economy.
It now expects the UK economy to shrink by 0.4pc this year, instead of growth of 0.2pc as it expected in July.
At the time the coalition government set out its austerity plans in June 2010, the OBR forecast that the economy would grow by 5.7pc from 2010 to mid 2012. In fact the economy has only grown by 0.9pc.
More recently in November 2011, the OBR predicted that GDP would be flat from the final quarter of last year to the second quarter of this year, whereas it actually fell by 1pc.
OBR, set up in 2010 to provide independent forecasts and assess fiscal policy, said “the error – missing the ‘double dip’” – reflected the unexpected weakness of net trader and to a smaller degree, investment.
TUC general secretary Brendan Barber said it was time for the chancellor to start looking at another plan.
“The economy has massively disappointed and yet the government is sticking to a fiscal plan based on decent growth forecasts,” she said.
“The Chancellor should think again and start taking action to get the economy moving.”
A Treasury spokesman said: “Today’s analysis from the independent Office for Budget Responsibility confirms their judgement that the reason growth in the British economy is weaker than they had forecast is to do with ‘unexpectedly stubborn inflation’ and ‘deteriorating export markets’.”
telegraph.co.uk
In its Forecast evaluation report (FER) released today, the OBR said: "Fiscal consolidation may also have done more to slow growth than we assumed."
However, spending cuts and tax increases were not the only reason for the OBR's forecasts falling short of the mark.
“Along with many other forecasters, we significantly overestimated economic growth over the past two years,” the report said.
"This likely reflected several factors, including the impact of stubborn inflation on real consumer spending, deteriorating export markets on net trade, and impaired credit conditions, euro area anxiety and demand uncertainty on business investment.
Chancellor George Osborne has come under pressure ease back on austerity. The International Monetary Fund earlier this month warned him that he risked further damaging the economy unless the pace of austerity slowed and he faced up to the country’s “growth challenge”.
The world’s economic watchdog also slashed its forecast for UK growth, in its sharpest downwards revision for any advanced economy.
It now expects the UK economy to shrink by 0.4pc this year, instead of growth of 0.2pc as it expected in July.
At the time the coalition government set out its austerity plans in June 2010, the OBR forecast that the economy would grow by 5.7pc from 2010 to mid 2012. In fact the economy has only grown by 0.9pc.
More recently in November 2011, the OBR predicted that GDP would be flat from the final quarter of last year to the second quarter of this year, whereas it actually fell by 1pc.
OBR, set up in 2010 to provide independent forecasts and assess fiscal policy, said “the error – missing the ‘double dip’” – reflected the unexpected weakness of net trader and to a smaller degree, investment.
TUC general secretary Brendan Barber said it was time for the chancellor to start looking at another plan.
“The economy has massively disappointed and yet the government is sticking to a fiscal plan based on decent growth forecasts,” she said.
“The Chancellor should think again and start taking action to get the economy moving.”
A Treasury spokesman said: “Today’s analysis from the independent Office for Budget Responsibility confirms their judgement that the reason growth in the British economy is weaker than they had forecast is to do with ‘unexpectedly stubborn inflation’ and ‘deteriorating export markets’.”
telegraph.co.uk
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