Andrew Lilico is the Chief Economist of Policy Exchange.
The Office for Budget Responsibility has released its first report this morning. Here are some interesting points to note:
- The growth rate for 2011 has been downgraded to 2.6% from the Labour government’s previous 3.25% (that seems about right to me).
- The trend growth rate of the economy has been downgraded from 2.75% per year to 2.35% per year out to 2014 and 2.1% thereafter (this still seems rather too high to me, but not ridiculously so).
- The estimated structural deficit (the bit of the deficit that recovery in growth won’t eliminate) has been increased from 7.3% of GDP to 8% (about £110bn).
- The headline deficit for 2010/11 is virtually unchanged at £155bn (the previous figure was £163bn as in Labour’s budget minus the £6bn of spending cuts announced after the Election = £157bn).
- The OBR estimates a 20% probability of another recession in 2014 (I expect such a recession in 2013 or 2014).
- Growth in whole economy earnings is expected to rise more slowly than the RPI for the next three years (not good for bankruptcies!).
- Claimant unemployment is expected to fall consistently from here on (not gonna happen).
- Residential property prices are expected to rise hereafter (unlikely, I think).
- The forecast short-term interest rates at 1.8% for end-2011 (which seems about right to me), but show them rising only slowly thereafter (which I consider unlikely).
- They have the gilts rate rising above 5% in 2014.
All in all, an interesting document and a useful basis for debate. If all OBR statements prove as rich in interest as this one, the OBR could prove an interesting innovation.
