Economists have criticized the official forecast for growth released by the U.K. government along with the Budget for being to ambitious about the potential for growth in the coming decade, according to Financial Times. The Institute for Fiscal Studies said that the Office for Budget Responsibility was incorrect to assume that the U.K. economy had 1.3% spare growth capacity that could be realized in the coming years. The Assumption would mean Chancellor George Osborne’s budget would have £15 billion extra for 2015-16, rather than a shortfall of £5 billion at that time if the output gap were not closed.
Other economists, such as Michael Saunders of Citigroup said that the OBR forecast “may be stretching things.” IFS director Paul Johnson said the official budget was “uncomfortably dependent on the judgments that the independent OBR makes over the unobservable potential output of the economy.” According to The Daily Telegraph, the OBR reported separately on Friday that inflation would likely continue to outpace wage growth in the U.K., which would mean lower real wages for households and would likely hamper consumer confidence. OBR member Stephen Nickell also warned, “If inflation doesn’t fall in 2012, that will undermine our growth forecasts.”
Click here to read the story on the IFS report from Financial Times.
Click here for coverage of the OBR warning from The Daily Telegraph.