A CITY broker attacked government growth forecasts as overly optimistic yesterday and warned of an “exceptionally bleak” outlook in a damning assessment of the economy’s progress over the past decade.
Tullett Prebon, the brokerage led by investment maverick Terry Smith, issued a doom-filled prediction that government growth forecasts would prove unachievable as the UK weaned itself off debt-fuelled spending.
The bearish forecast claimed that the past decade of expansion was propped up by personal and government overspending. That has left the economy skewed towards sectors that depend on either private or public borrowing, global head of research Tim Morgan argued in a strategy note.
These sectors, including financial services, construction and real estate, as well as health and education, now account for 58 per cent of UK GDP and so leave the economy vulnerable as government funding stops.
“Six of the eight largest sectors of the UK economy are dependant either on private borrowing or on public spending,” Morgan said. “These sectors are now set to contract rather than expand, which renders aggregate economic growth implausible.”
Ignoring international and independent forecasts for 1.7 per cent UK growth in 2011, Morgan rubbished chancellor George Osborne’s view that growth will drive the UK’s recovery.
“We see no reason whatever to assume this,” he said. “If this doesn’t happen – and we are convinced that it can’t – the deficit reduction plan will come apart at the seams.”