The New OBR Numbers
I’ve had a quick look at the new OBR forecasts.
My first thought – this is a lot more realistic than the last set of forecasts, although as Robert Chote himself says they will almost certainly be wrong.
2010 growth has been revised up but coming November with Q2 and Q3 growth figures both having surprise on the up side already (due, according to the OBR to temporary factors notably construction) this isn’t “new news”. The downgrades to 2011 and 2012 growth are far more significant.
Equally, I don’t find the revising down of public sector job losses especially surprising. What has changed between now and the June budget is the amount of spending cuts coming from welfare – more money cut from that budget means less cut from other public spending and hence fewer job losses.
I expect the OBR forecast of public sector job losses to be reasonably accurate – they are in a better position to forecast than they are anything else and Robert Chote is a very competent economist.
So 330,000 jobs lost in the public sector (on current spending plans) seems a reasonable assumption.
The core message of the OBR is that this will be a slower recovery than those of the 1970s, the 1980s or the 1990s. Even on their numbers unemployment will still be higher in 2015 than it was pre-recession.
The great uncertainty, and where I worry the OBR is too optimistic, is the private jobs market.
They still assume a business investment boom is about the occur and they still bank on a very strong performance by UK exports – but as the Chancellor reminded us last week, we currently export more to Ireland than to Brazil, Russia, India and China combined. We growth prospects in our major trading partners looking weak (and with the ongoing threat of global currency wars and trade battles), we can’t be sure of this. And without strong external demand I don’t see businesses investing in their future capacity.
No export boom would mean no business investment boom. In the absence of these it is hard to justify their forecast for private sector job creation.
These downgrades have taken the OBR closer to my own (back of the envelope) forecasts made six months ago (for example I estimated 2011 growth at 1.8%, they said 2.3% in June and have now revised down to 2.1%). So we probably set for a sluggish recovery, the only question is how sluggish.