IT is amazing how narrow our escape from disaster has been. Yesterday, on a day when the markets continued to worry about the Eurozone, the Office for Budget Responsibility’s long awaited forecasts were reassuringly benign. Unexciting, sure, and an exercise in sophisticated guesswork, evidently, but that was exactly what the doctor ordered. A year ago, it looked as if we would be the ones begging the IMF for money; no longer.
There are, of course, real similarities between the UK and those parts of the Eurozone that are in crisis: UK?house prices will fall 3.1 per cent next year; the public sector will shed hundreds of thousands of jobs over the next few years (albeit fewer than previously expected); consumer spending will grow by less than GDP; and the budget deficit remains extremely large. But the big difference is that the UK appears on course to resolve its budget deficit and has very little chance of suffering another recession, thanks in the most part to the coalition’s policy of austerity.
It is good news that the commentariat has moved away from its irrationally ultra-pessimistic phase of just a few weeks ago. At the time, most journalists (albeit not at City A.M.) were inserting the world “double-dip” in everything they wrote and the Labour Party was openly predicting the end of civilisation as a result of the coalition’s cuts. Since then, sanity has returned, partly because it is obvious that modest growth and job-creation has returned, partly because the Labour party has nothing to win from endlessly crying wolf and partly because the crisis all around us is unarguable proof that belt-tightening is not optional when budget deficits are out of control.
The growth and borrowing numbers from the OBR are highly plausible. They may turn out to be a bit too high – or a bit too low – but they are a perfectly sensible guesstimate. GDP growth this year has been revised from 1.2 per cent to 1.8 per cent; having already created several hundred thousand jobs this year, the private sector is forecast to add a total of 1.5m by 2015, offsetting the 330,000 or so to be lost in the state sector. It has done the OBR’s credibility as an independent force (if not as an accurate forecaster) a world of good to have so badly under-estimated growth for this year. The big story of 2010 is how well the UK has done and how it has outperformed what many were predicting.
Growth for next year is now seen at 2.1 per cent; for 2012, it is expected to come in at 2.6 per cent. All highly reasonable figures. The OBR’s verdict remains that the cyclically adjusted current budget will be in surplus in 2014-15, a year ahead of schedule. The forecast may be right – or it may turn out to spectacularly wrong in the event of a catastrophe abroad. But the fact that a relatively benign set of predictions from the UK’s new official forecaster haven’t been laughed out of town shows just how far the British economy has come over the past year.
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