David Blackburn

Setting the scene for Osborne’s speech

Setting the scene for Osborne’s speech
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George Osborne will make a brief statement to the house this afternoon, responding to the Office for Budget Responsibility’s revised growth forecasts. Reuters reports:

‘As expected, the Office for Budget Responsibility raised its 2010 growth forecast to 1.8 percent from its 1.2 percent June forecast to factor in a surprisingly strong performance in the middle of the year.’

The upgrade fuels Osborne’s positive narrative: the coalition pulled Britain from the abyss and international confidence in Britain's economy is growing. These forecasts vindicate the government’s ‘cut with care’ strategy. Concrete savings are now being made and they enable the Chancellor to announce that public sector net borrowing will fall. Reuters again:

‘The watchdog shaved its estimate for public sector net borrowing for the fiscal year 2010/11 to 148.5 billion pounds from 149 billion pounds. Its forecast for 2011/12 was 117 billion pounds, slightly up from the 116 billion seen in June.

In 2012/13, government borrowing is predicted to fall to 91 billion pounds, two billion higher than the June forecast.

However, the OBR said the coalition had a greater than 50 percent chance of achieving its deficit goals.’ As Ireland burns and Portugal totters, these endorsements are worth their weight in gold. However, the OBR has some small reservations. It reduced its 2011 forecast from 2.3 percent to 2.1 percent, and cut its 2012 prediction from 2.8 percent to 2.6 percent from 2.8 percent. It reasons that stagnant credit conditions, debt repayment and the deepening austerity drive will slow growth.

The OBR’s predictions are on the optimistic side and Labour will deploy a pincer, attacking the apparent absence of a growth strategy from one side and regressive cuts from the other. Osborne will have to counter both: today's growth review will go some way towards that. Also, it must be conceded, a 0.2 percent drop is not cataclysmic and 2.6 percent growth is not to be sniffed at.