CHANCELLOR George Osborne served up a recipe for four more years of austerity during his Autumn statement, although the UK could be on course to regain its prized triple A credit ratings, according to leading economists.
Mr Osborne said British growth was faster than other major advanced economies, including the US, and he announced the first big fall in projected public borrowing since the coalition took power in 2010.
Borrowing – stripping out the effect of cash transfers from Royal Mail and the Bank of England – was revised down to 6.8 per cent of gross domestic product in the current fiscal year, from March’s estimate of 7.5 per cent. The deficit, by that measure, would be wiped out by the 2018/19 fiscal year.
However, based on another measure of Britain’s over-spending which Osborne originally used as a target for his austerity programme, the deficit was due to take a year longer than previously forecast to return to surplus.
Mr Osborne said forecasts from Britain’s budget watchdog, the Office for Budget Responsibility (OBR), also showed economic growth in 2013 was expected to be 1.4 per cent, rising to 2.4 per cent in 2014. That represented a big upgrade from the OBR’s predictions in March of growth of 0.6 per cent and 1.8 per cent respectively.
However, the economy remains smaller than before the financial crisis and Mr Osborne stressed that Britain faced more spending cuts in the years ahead to rebalance its public finances and restore the economy to health.
“Britain’s economic plan is working. But the job is not done,” Mr Osborne said, noting the structural budget deficit – which is not helped by a pick-up in the economy – was not expected to fall any faster than previously forecast.
Alan Clarke, at Scotiabank, said an earlier, and lower, peak in the national debt than previously forecast could see Britain recover its triple-A credit ratings. Standard & Poor’s is the only one of the three main agencies to still have Britain on the top rating after Moody’s and Fitch took their UK ratings down a notch this year.
Peter Spencer, of York University, the economic adviser to the EY ITEM Club, said: “Borrowing is likely to be £9bn lower this year, with similar reductions pencilled in for the future. However, the OBR is stressing this is a cyclical rather than an underlying improvement, signalling this is not an opportunity for a fiscal relaxation.
“The Chancellor concurs and has set out a plan that is fiscally neutral over the longer term. His measures reduce borrowing by about £2bn in the near term, but then give some of this back over the next three years. But it is basically a recipe for four more years of austerity.”
Richard Wright, the executive director of Sheffield Chamber of Commerce, said the upward revision of growth forecasts should boost business confidence.
He added: “The Government is aiming for growth to be at 2.7 per cent by 2018, and while we should be aiming higher than this, it will provide the stability business owners need when looking to invest in the future.”
Bradford Chamber president, Paul Mackie, said the improved growth forecasts were good news, but “there’s not been enough today for businesses to think about investing more – and that’s what’s needed to propel recovery and growth forward at a faster rate.”.
Andrew Palmer, CBI Yorkshire & the Humber director, said: “We have always advocated the dual approach of tackling the deficit and driving growth – the OBR forecasts confirm it is working. Let’s stick with what works.”