THE BIGGEST reaction to today’s Budget came when the chancellor revealed that growth figures for the UK economy had been revised down to 1.7% from 2.1%. The Budget in June last year had even expected 2.3%.
But a look at the report from the Office for Budget Responsibility reveals it does not expect growth to be above 3% for the five year scope of its forecasts leading to a dismal conclusion.
“Looking over the whole five-year period forecast horizon, we expect this recovery to be weaker than the recoveries of the 1980s and 1990s,” the OBR report said.
The report blames the revised growth figure on higher than expcted inflation squeezing disposable income.
But the OBR adds: “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.”
However, there is a plus side to low growth now, said the OBR. It means there is spare capacity in the economy and that “creates scope for slightly stronger growth in later years. But not all lost ground is made up and GDP is expected to be lower – and the output gap bigger – at the end of the forecast than we predicted in November.”
However, there is good new on the deficit with the OBR predicting public sector bet borrowing to be £2.6bn lower than expected at £145.9bn.
The OBR concludes the government has a greater than 50% chance of meeting two key economic target it set itself on taking office last year – balance the budget by the end of a five year period; and to see public sector net debt falling in 2015/16.
The government also expect tax recepts to be improved in 2011/12, despite revised economic growth. Total receipts will rise to £589bn against £548bn in 2010/11.
Corporation tax receipts are expected to rise by more than 11% to £48bn. VAT receipts are expected to rise by nearly a quarter to £100bn.
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