Slower UK growth a result of other shocks, not austerity says Treasury

The UK's government spending watching - the Office for Budget Responsibility (OBR) - has released its forecast evaluation report (release).

An HM Treasury spokesman says that the evaluation shows that the "likely explanation for slower than forecast growth is the impact of higher global commodity prices, the euro area crisis and the ongoing impact of the financial crisis" rather than "the impact of the government's deficit reduction plan".

Sections from the OBR report below:

Last year, we concluded that our borrowing forecasts to 2011-12 had remained on track despite weak real GDP growth, largely because growth in the nominal, or cash, economy had held up closer to our forecast.

...

Following substantial data revisions, that story now looks somewhat different. The ONS has doubled its estimate of real GDP growth between mid-2010 and mid- 2012, while revising down its estimate of nominal GDP growth over the same period. So the former is now closer to our forecast than the latter. The reason the deficit continued to fall on schedule in 2010-11 and 2011-12 now owes more to the composition of nominal GDP than to its level. Specifically, the shortfall in nominal GDP was concentrated in those areas that are taxed relatively lightly: private investment rather than private consumption and corporate profits rather than labour income. Tax receipts were still somewhat lower than forecast in 2011-12, but this was offset as central government departments under-spent the Treasury’s limits and local authorities spent less than we expected in order to build up their reserves.