The Office for Budget Responsibility (OBR) believes there is only a 60 per cent chance that the government will meet its austerity targets by its own fiscal mandate deadline of 2016-17.
The OBR has also revised its forecast for UK economic growth downwards from 1.2 per cent to 0.7 per cent in 2012.
The OBR said that it was revising its growth forecast down because of lower levels of growth than it predicted in March and “higher-than-expected inflation has squeezed household incomes and consumer spending.”
In his autumn statement today, the Chancellor, George Osborne said that government borrowing will be £5 billion higher than was originally forecast this year, £19 billion higher in 2012-13 and 330 billion higher than in 2013-14.
The Chancellor and the OBR admitted that both the levels of economic growth and the size of the UK’s public debt in future years could be adversely affected by an escalation in the euro debt crisis.
However, George Osborne insisted that the UK was not in recession at this time despite a report from the OECD yesterday that said the UK economy was contracting now and will continue to do so in the first part of 2012. A recession is defined when two or more quarters show a fall in economic output.
The OBR said that it is cutting its forecasts chiefly because of concerns over the Eurozone, high food and fuel price inflation and an increase in the structural deficit.
Focusing further ahead, the OBR cut its forecasts for economic growth marginally for 2014, from 2.9 per cent to 2.7 per cent and for 2015 from three per cent to 2.8 per cent. Some analysts believe this is inaccurate and paints to bright a picture for the economy in those years.
The OBR said in its report: “We now assume that potential output will take until the start of 2014 to return to its long-term average growth rate of around 2.3 per cent a year.
“Public sector net borrowing (PSNB) is expected to total £127 billion or 8.4 per cent of GDP this year by 2015-16, we expect PSNB to have fallen to £53 billion or 2.9 per cent of GDP, compared to the £29 billion or 1.5 per cent of GDP that we forecast in March.”
The Government’s fiscal mandate requires it to balance the structural or cyclically-adjusted current budget (CACB) at the end of the five year forecasting horizon, which in this EFO has now rolled forward to 2016-17.
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