Growth has upset Osborne’s plans — and it’s likely to get worse

The real story, as everyone expected, wasn’t in the Pre-Budget Report ‘Green Book’ — but in the supplementary document produced by the Office for Budgetary Responsibility. Growth forecasts have taken a dive. And while that is both unsurprising and not all that revealing, it carries grim implications for so much else. I mean, just look at the graphs we produced in our last post: forecasts for debt, unemployment and borrowing are all up. It is not a pretty picture.

But despite the dreariness of it all, I suspect that the numbers are far too optimistic. The clue comes at the start of the OBR report:

‘The central economic and fiscal forecasts assume that the euro area finds a way through its current crisis, but a more disorderly outcome is clearly a significant downside risk. This risk cannot be quantified in a meaningful way, as there are numerous different ways in which such an outcome could unfold. Suffice to say, the probability of an outcome much worse than our central forecast is greater than the probability of an outcome much better than our central forecast.’

So underpinning the whole Budget is an assumption that eurozone will sort itself out. And the excuse for that assumption is that the OBR couldn’t possibly forecast the thousands of ways it could, and may well actually, unravel. At best, this is an understandable limitation on their part. At worst, it is a dreadful conceit: presenting a better set of forecasts than we can realistically expect.

As for Osborne’s policy response, there were few surprises. Beyond the overarching fiscal structure, there were three emphases: building new infrastructure, easing credit towards SMEs, and relaxing the squeeze on middle-income households. In the case of all three, you’ll have read the details in the newspapers across the past week.

The main surprise was probably the news that benefits would be uprated by the full 5.2 per cent — a coup for IDS, who feared that anything less might upset his carefully calibrated schemes to encourage people back into work, and for the Lib Dems too. But, really, this wasn’t a Budget that pulled rabbits out of hats, or triumph out of disaster. With the eurozone teetering on the brink of oblivion, it all felt rather inconsequential.