CHANCELLOR Alistair Darling yesterday announced an £11bn reduction in the Treasury’s borrowing forecast for 2009-10 to £167bn and reiterated his pledge to halve the budget deficit within four years.
Under new forecasts announced during the Budget, public borrowing will fall to £74bn in 2014-15, the end of the forecast period. As a share of GDP, borrowing is now expected to be 11.8 per cent this year and will fall to four per cent by 2014-15, slightly below the 4.4 per cent predicted in December’s pre-Budget report (PBR).
Net debt as a share of GDP will peak at 74.9 per cent in 2014-15 before falling thereafter. However, it will be decades before it is back towards pre-crisis levels of 40 per cent.
However, as Citi’s Michael Saunders pointed out, these improvements are a consequence of more optimistic expectations rather than any new policy decisions.
Darling reiterated his growth forecast for 2010 of 1-1.5 per cent but revised downwards his 2011 forecast to 3-3.5 per cent – from 3.5 per cent in the PBR – to bring it into line with the Bank of England’s median forecast.
ING’s Mark Cliffe said this will still be a big ask. ING is forecasting GDP growth picking up only to 1.8 per cent in 2011, up from 1.1 per cent in 2010.
But even assuming a solid pickup in growth, the official projections imply that the output gap will still be around 2 per cent in five years time.
The British Retail Consortium said Darling had “offered no reassurance” on solid spending cuts.