Belfast Telegraph

Lacklustre growth 'not due to cuts'

Britain's independent spending watchdog has insisted the Government's austerity drive is probably not to blame for the UK falling short of its growth targets.

In its annual defence of its spending and growth forecasts, the Office for Budget Responsibility (OBR) said weak company investment, squeezed exports and sluggish consumption have held back the UK far more than it expected over the past three years.

In a fillip to Chancellor George Osborne's cost-cutting strategy, the OBR said Britain's lacklustre growth reflects the "weakness of domestic and external demand" rather than slashed Government spending.

"While it is clearly possible fiscal policy has slowed the growth of the economy by more than was assumed in the June 2010 forecast, this does not look the most obvious explanation for the bulk of the shortfall," the watchdog said.

Although recent data has shown a sharp pick-up in UK gross domestic product (GDP) so far this year, it follows three years of anaemic growth.

Real GDP has grown by just 3.2% since the beginning of 2010, compared with the watchdog's June 2010 forecast for 8.9% expansion over the period. GDP remains 3.3% below the pre-recession peak.

Government borrowing has also disappointed, falling by just £3 billion in 2012-13 compared with the OBR's 2010 estimate of a £27 billion reduction.

The OBR said weak company profits have dampened business spending, also hindered by uncertain domestic and overseas demand.

Exporters also failed to use the weakness of the pound to boost market share and grow exports, instead opting to rebuild profit margins.

And it said real terms consumption has been weak, with wages squeezed by rising commodity prices such as oil.

The OBR said: "We clearly cannot rule out the possibility that the unexpected weakness of economic growth can be explained in part by the fiscal consolidation acting as a greater drag on GDP than the interim OBR had assumed in June 2010.

"But there are a number of more plausible explanations for this weakness."

A Treasury spokesman said the report justifies the Government's deficit-busting plan.

He said: "Today's report reminds us of the work that remains to be done to deliver sustainable jobs and growth to the UK economy.

"The Government will not let up on its plan that has already cut the deficit by a third and created over one and a quarter million jobs."

He added: "When it comes to the reasons for slower than forecast growth in the UK over the last three years, their conclusion remains the same as last year: there is no convincing evidence that the impact of the Government's deficit reduction plan has been larger than the OBR originally expected in 2010.

"Instead they find that a more likely explanation for slower than forecast growth is the impact of higher global commodity prices, the euro area crisis and the ongoing impact of the financial crisis."

The OBR was set up soon after the coalition Government came to power in May 2010.

The watchdog took responsibility from the Chancellor for setting the economic growth and government borrowing forecasts on which the Budget calculations are based.