Peter Hoskin

Will Darling’s forecasts have investors running scared?

Will Darling's forecasts have investors running scared?
Text settings
Comments

Of course, Darling's big forecasting error in the PBR was his claim that the UK economy would start recovering by the third quarter of this year.  But, ahead of today's Budget, it's worth highlighting the borrowing forecasts he's made.  As Robert Peston indicates in his latest blog post, a year makes an awful lot of difference:

"In the last budget, a year ago, Alistair Darling projected public-sector net borrowing for 2009/10 of £38bn.

Come the autumn and his pre-budget report, he projected that net borrowing for that period would be more than three times greater, at £118bn.

And today, just a few months on, he's expected to say he's understated yet again the scale of what the public-sector needs to borrow - and that public sector net borrowing in the current fiscal year will be nearer to £180bn."

Sure, the counterargument is that the Government didn't foresee the recession, so it could hardly have foreseen the massive rise in borrowing that came with it.  But the point is, they've never had a good track record with their borrowing forceasts.  The 2000 Budget predicted net borrowing of £11 billion in 03-04, but it turned out to be around £35 billion; the 2003 Budget had borrowing at £23 billion for 05-06, but it turned out to be £38 billion; and so on and so on.  And that's not even considering Brown's off-balance sheet ruses, such as PFI and, now, elements of the banking bailout.  During my previous life at a think tank, I put together a table showing the disconnect between the Government's forecasts and the outcome - you can see it on pages 50-51 of this report.

But why does this matter?  Well, if investors think that the Government's being too optimistic with its forecasts - and, ergo, over its ability to pay back all that debt - then they'll be more nervy about buying all those bonds and gilts that the Treasury's lining up for them.  And if the investors get spooked, then there's just one question left: where will Brown turn next?