Written evidence submitted by David Kern,
Chief Economist, British Chambers of Commerce (BCC)
COMMENTS ON
OBR FORECASTS - NOVEMBER
2011
I give below brief comments summarising our reaction
to some of the main points in the OBR's November 2011 forecasts.
- General: Overall,
we agree with the cautiously optimistic tone underlying the OBR's
forecasts and assumptions. We agree with the OBR that UK GDP growth
is likely to remain in positive territory over the next few years,
even though the tough fiscal consolidation programme will be implemented
broadly as planned. We also accept the OBR's view that a new recession
will be avoided. We believe that the pace of UK growth is likely
to strengthen gradually towards the middle of the decade. However,
we think that the OBR's specific growth forecasts for are a little
too optimistic for 2011, 2012 and subsequent years.
- Growth: For
2010, the OBR's GDP growth forecast of 1.8% is entirely realistic,
and is the same as our own forecast. But 2010 is now mostly history.
Looking beyond 2010, the negative impact on UK growth of the VAT
increase to 20% in January 2011 and the other deficit-cutting
measures will be more severe in our view than the OBR now estimates.
We believe the slowdown in growth will be sharper, and will last
longer, than the OBR predicts.
- The differences between the OBR and us are not
very large. For 2011, we are now forecasting 1.9% GDP growth for
2011, only slightly less than the OBR's forecast of 2.1%. But
the differences are larger in subsequent years. For 2012, the
BCC is forecasting 2.1% growth, while the OBR is predicting 2.6%.
Taking the entire five-year period 2011-15, the BCC assumes average
UK GDP growth of 2.2% per annum, while the OBR assumes 2.6%, an
average difference of 0.4% per annum.
- For 2011, the main reason for the difference
between the OBR and us is that we may give greater weight to the
adverse effects on growth of recent falls on house prices, and
to other signs of increased financial fragility in the UK household
sector. I believe we also give greater weight to the dampening
effect on UK growth of adverse international factors, mainly the
potential negative implications of the Eurozone's debt problems.
- Over the medium term the differences between
the BCC and the OBR are very probably due to the fact that our
assumptions about spare capacity in the UK economy, about growth
in potential output, and about the UK economy's ability to close
the gap between actual and potential output in the next few years,
are a little more cautious than those of the OBR.
- Fiscal position:
As mentioned above, we accept the basic OBR assumption that the
Government's fiscal consolidation programme will be implemented
broadly as planned over the next few years, while real economic
activity will continue expanding. However, since our GDP forecasts
are slightly lower than those of the OBR, our predictions for
Public Sector Net Borrowing (PSNB) are marginally higher. But
the differences are not significant. In each of the next two years,
the difference between the OBR and us (regarding the size of the
PSNB) is only 0.2% of GDP; in the subsequent three years, the
difference between the OBR and us (regarding the size of the PSNB)
increases slightly to about 0.4% of GDP.
December 2010
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