OBR: Osborne on track to hit debt targets

 
Tim Wallace
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THE ECONOMY should grow quickly enough for the government to hit its borrowing targets, the Office for Budget Responsibility reported yesterday – though it stressed risks remain from instability in the Eurozone and rising oil prices.

GDP should start growing strongly into 2014, inflation is expected to stabilise in 18-months time and the deficit will have peaked as a proportion of GDP by 2015-16, the independent body predicted.

The economy is expected to grow 0.8 per cent this year – a 0.1 percentage point improvement on the last OBR forecast in November – two per cent in 2013, 2.7 per cent in 2014 and three per cent from then on.

As a result there is a 60 per cent chance the government will meet its target to balance the budget by the end of the five-year rolling period – now 2016-17, the OBR said – and a 40 per cent chance it will be met a year earlier. Due to lower-than-expected spending, the deficit in 2016-17 is likely to be £2.5bn lower than forecast in November, and this year’s borrowing is set to be £1.1bn lower.

The supplementary target, to start bringing debt down as a proportion of GDP by 2015-16 is also likely to be met, forecast to fall 0.3 per cent that year.

Consumer spending will grow slowly until 2014 when wage growth will really start to outstrip inflation again, while business investment should grow 40 per cent over the forecast period to 2016. While this appears strong, investment predictions have actually been cut from November’s forecast due to the fall in GDP in the final quarter of 2012 and the OBR’s belief that corporate balance sheets are not as healthy as official figures suggest. However, the faster corporation tax cut has added one per cent to investment growth over the outlook period.

Meanwhile the OBR believes consumer price inflation will fall sharply though 2012 – as has already begun to happen – before remaining close to the two per cent target from 2013.

The body has also cut its house price forecasts, and now expects average prices to fall 0.4 per cent this year, rather than 0.2 per cent, before growing by just 0.1 per cent in 2013 rather than the 1.9 per cent previously forecast.