OBR forecast is more realistic, but still too ambitious
5th December 2012
Commenting on the new forecast published today by the OBR alongside the Autumn Statement, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said: -At -0.
1%, the OBR's new GDP growth forecast for 2012 is identical to our own, and predicts a sharp slowdown in the fourth quarter of 2012. For 2013 and 2014, the OBR is forecasting 1.2% and 2.0% respectively, which is more realistic than their earlier predictions in March. But we believe the new figures may still be slightly too ambitious, as we are expecting GDP growth of only 1.0% in 2013 and 1.8% in 2014. -On public finances, the new forecast supports our view that eliminating the structural deficit will not be completed until at least 2018/19. The OBR also confirmed that the supplementary target of reducing net debt will have to be delayed by at least one year. -The new fiscal forecasts are disappointing but not surprising, so it would be premature to assume that the UK will lose its AAA rating. The Chancellor's commitment to tackle the deficit remains resolute. His decision to cut welfare spending further and reduce the number of civil servants will reinforce market confidence. At the same time, there is a welcome focus in the Autumn Statement on policies that will improve the productive potential of the economy through investment incentives and reduced corporation tax.