Pace of recovery to be muted
Sat alongside the tax measures intended to stimulate growth and the reduction in fuel duty introduced in the Budget was the latest report from the Office for Budget Responsibility (OBR).
Revised figures from the OBR predicted that growth for 2011 would be just 1.7 per cent, down from its previous estimate of 2.1 per cent and trailing 0.6 per cent on the forecast made in last year’s emergency Budget.
Indeed, the OBR has said that annual growth will fail to break the 3 per cent mark for the duration of this Parliament.
The conclusion of the independent forecasting body is that the speed of recovery from the recession will be slower than that experienced when the UK emerged from the downturns of the past three decades.
The OBR report said: “Looking over the whole five-year period forecast horizon, we expect this recovery to be weaker than the recoveries of the 1980s and 1990s.”
One reason for the tardy pace of recovery this year is the stubbornness of inflationary pressures and the absence of genuine traction in the economy.
The report continued: “Recent data show that the economy had less momentum than we expected entering 2011, even after adjusting for the temporary impact of December’s heavy snowfall.”
The modest pace of expansion does, though, mean that the economy holds spare capacity, allowing room for an improved rate of progress in future years.
That said, the OBR’s optimism is muted. It does not believe that all the lost ground will be recaptured and that GDP is expected to be lower and the output gap bigger at the end of the forecast than was predicted in the last OBR report.
On borrowing and the deficit reduction, the OBR calculated that the Government has a better than even chance of meeting its two core economic targets; those of balancing the budget by the end of the Parliament and of achieving a fall in public sector debt by 2015/16.
Tax receipts, nevertheless, should rise in 2011/12, up to £589 billion compared with £548 billion in 2010/11.
Corporation tax should deliver £48 billion, a 11 per cent improvement, and VAT £100 billion, almost a 25 per cent rise.