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OBR's autumn forecast vindicates Government's economic policy
30/11/2010 13:07:00

This Government's central mission is to get the UK out of the financial danger zone where the previous government left it.

We can see from what is happening in Ireland at the moment what the consequences are when the financial markets lose confidence in a country's ability to repay its debts. When this Government came to power, the UK had the highest structural deficit - the gap between what a government spends and its income after adjusting for the economic cycle - of any of the world's major economies. Labour were only planning to halve this deficit over the next four or five years. In other words, they were still planning to be borrowing significant sums of money in 2015/16.

The advice from the Governor of the Bank of England and others was clear: this wasn't good enough, more urgent action was required. So the Government introduced an emergency budget, setting a new target to eliminate the structural deficit by 2015/16. At the time, Labour said that this was too quick and that we risked tipping the economy back into recession.

Today, the independent Office for Budget Responsibility (OBR) has published its first autumn forecast. In the past, these forecasts have been made by the government of the day - and surprise surprise they have often turned out to be somewhat optimistic. George Osborne deserves a lot of credit for setting up an independent body, appointed by MPs from all parties, to make these forecasts so that we can have more confidence in them.

The OBR's forecast says that the economy has "recovered more strongly since the spring than the interim OBR expected at the time of the June Budget" and that as a result "we have revised our forecast for GDP growth this calendar year from 1.2% to 1.8% while revising down our forecast for 2011 from 2.3% to 2.1%. Over the medium, we expect growth to accelerate to 2.6% in 2012 and 2.9% in 2013, before slowing to 2.7% in 2014 and 2015". It also says that "the Government has a better than 50% chance of meeting its mandate for a cyclically-adjusted current budget balance in 2015/6" - that's economists speak for eliminating the structural deficit - and "we expect employment to rise from 29 million this year to 30 million in 2015, as private sector job creation more than offsets falling public sector employment".

Now these are only forecasts but they show that the experts believe that, far from tipping the economy back into the recession, the Government is on course to both balance the books and grow the economy.

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