Belfast Telegraph

Watchdog predicts a weaker recovery

Revised forecasts by the UK's tax and spending watchdog have predicted a slower recovery than expected.

The Office for Budget Responsibility's Economic and Fiscal Outlook report said that the economy will continue to recover from the recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s.

The OBR said the Government has a "better than 50%" chance of meeting its mandate to reduce the structural deficit - the gap between Government spending and taxes - by 2015-16. Projections for public borrowing were similar to the OBR's June forecast, as it slightly lowered its estimate in the current 2010-11 financial year to £148.5bn from £149.5bn.

The watchdog also added that as the Government reduced its planned cuts in public services spending, by announcing additional cuts in welfare spending, it expects the number of public sector job losses planned for the next four years to significantly shrink.

As growth slows in the near-term, the OBR expects total unemployment to rise to a peak of just over 8% in 2011 - in line with previous forecasts. The watchdog then expects unemployment to fall to just over 6% by 2015.

The OBR also expects the rate of inflation - or cost of living - to be higher in 2010 and 2011 than in its June forecast, but will fall below the Bank of England's 2% target by 2012, as the effects of the VAT hike fade away.

Vicky Redwood of London-based consultancy Capital Economics said the outlook by the OBR was "too optimistic".

David Kern, chief economist at the British Chambers of Commerce, said the growth forecasts for 2011 onwards appear too ambitious, while Howard Archer, chief UK and European economist with IHS Global Insight, said the figures were "tweaking rather than changing the story".

Trade unions also reacted strongly to the revised forecasts.

Unite general secretary-elect Len McCluskey said the upgrade to the 2010 growth forecast from 1.2% to 1.8% did not add up with job losses, financial cutbacks and belt tightening across the UK.