Senior members of the embattled Office for Budget Responsibility (OBR) admitted that Chancellor George Osborne’s emergency Budget has increased the chances of a double-dip recession – but they are hoping for recovery.
Their admission coincided with the International Monetary Fund’s slashed growth forecasts for this country while predicting a faster than expected recovery for the global economy. The latest IMF quarterly World Economic Outlook lowered Britain’s growth estimates to 1.2 per cent for this year and 2.1 per cent in 2011 – below the 2.3 per cent predicted by the OBR. Departing OBR chairman Sir Alan Budd and fellow panellist Geoffrey Dicks said a return to recession remains a serious possibility for this country but added that – “on balance” – it was more likely the economy would continue growing.
“The near-term outlook for GDP is not as good as it was before the Budget. I still don’t think that will mean a double-dip, but logically the chances of that happening have increased,” said Dicks. “This is a matter of extreme uncertainty, and the possibilities certainly include a double-dip recession, but they also include a stronger recovery”, said Sir Alan. Ivy League economist David Blanchflower said the departure of 72-year-old Sir Alan meant no genuinely independent economic forecaster would take the OBR job for fear of losing their reputation. “Within eight weeks of being there, their economic policy is in disarray”, Professor Blanchflower said. Goldman Sachs’ economist Jim O’Neill – an advocate of debt reduction – conceded that all G20 members tightening fiscal policy at the same time as Britain’s tough stance would make it hard to deliver on improving growth for all, or possibly any.
The IMF forecast expressed similar concerns: “Growth prospects in advanced economies could suffer if an overly severe or poorly planned fiscal consolidation stifles still-weak domestic demand.” Shadow Chancellor Alistair Darling said of the IMF forecast: “This downgrade shows the huge risk the new Government is taking by deliberately choosing to take so much money out of the economy.”
Meanwhile, analysis by Tax Research UK criticises the Institute for Fiscal Studies – whose director may be the next OBR chair – for succumbing to political dogma in claiming that VAT increases are not regressive and may even be progressive.
