Britain austerity seen to last longer than planned – finmin
UK set to slash growth forecasts
LONDON, Dec 2, (AFP): British finance minister George Osborne warned Sunday that economic recovery will take longer than planned but insisted that abandoning the government’s tough austerity measures would be catastrophic.
Chancellor of the Exchequer Osborne is to deliver his Autumn Statement before parliament on Wednesday, alongside the latest growth and borrowing forecasts from Britain’s Office for Budget Responsibility (OBR) fiscal watchdog.
“We had two targets, one was to get debt share falling as a share of national income by 2015/16 and also to balance the current budget,” Osborne told BBC television.
“It’s clearly taking longer to deal with Britain’s debts, its clearly taking longer to recover from the financial crisis than anyone would have hoped but we have made real progress.”
Osborne said he wanted the British economy to grow but insisted that cutting debt was the right course.
“Undermining the credibility of our deficit plan, going back on our commit- ment to deal with our debts, would be a complete catastrophe for Britain,” Osborne said. He added that doing so would “would put us into the place where some European countries are at the moment and that is not a place Britain wants to be.”
Separately in the Sun on Sunday newspaper, Osborne wrote: “There is a lot more to do, but together we are making progress.
“The road ahead may be longer than we thought but it leads to a better future. Let’s have the courage to stay the course.”
Painful
Britain’s Conservative-Liberal Democrat coalition government, which took office in May 2010, has imposed painful austerity measures to slash a record deficit inherited from the previous Labour administration.
But the economy has since been through a double-dip recession.
Experts predicted that the OBR would cut its forecasts for Britain’s gross domestic product with the economy buffeted by state austerity, inflationary pressures and the debt crisis in key trading partner the eurozone. Weaker economic growth would slash future tax receipts, hitting the coalition government’s purse and sparking upward revisions to its official borrowing targets, analysts say.
Osborne had in March forecast that the economy would grow by a weaker-than- expected 0.8 percent this year, followed by 2.0 percent in 2013 and 2.7 percent in 2014.
“The growth forecast will have to be revised down, not only because the euro area and hence exports will remain weak, but also because real household incomes continue to decline partly due to the persistence of higher than expected inflation,” Daiwa Capital Markets economist Chris Scicluna told AFP.
“Overall, I think it will be difficult to justify a growth forecast much above 0.5 percent in 2013. “Against the backdrop of the flat-lining economy, the chancellor would be ill-advised to try to tighten fiscal policy,” he added.
Recent official data showed Britain had escaped from recession in the third quarter of this year, with its economy growing 1.0 percent thanks to the London Olympics and rebounding activity after public holidays in the second quarter.
Outlook
However the outlook is clouded by the eurozone’s long-running debt drama, despite it easing somewhat last week after debt-plagued Greece was granted its latest tranche of bailout cash.
“Disappointing news has become an unfortunate feature of recent Autumn Statements and again this year the chancellor will have to accept downgrades to the OBR’s growth projections,” said KPMG chief economist Andrew Smith.
“These will not be as savage as last year... but nevertheless point to further slippage in the fiscal position.”
Alongside Osborne’s annual budget in March, the OBR predicted that public sector net borrowing (PSNB) as a proportion of economic output would begin to fall in 2015/2016, after peaking at 76.3 percent of GDP in 2014/15.
And it forecast state borrowing would reach £120 billion ($192 billion, 148 billion euros) in the 2012/2013 financial year ending in March, compared with £121.4 billion in 2011/2012.
However, with PSNB already standing at £73.3 billion and four months of the financial year to go, Osborne could breach the target.
Britain’s Conservative-Liberal Democrat government, which rose to power in 2010, has imposed a series of painful austerity measures to slash a record deficit that was inherited from the previous Labour administration.
The coalition blamed the recession largely on the debt crisis in the neighbouring eurozone, but the main opposition Labour party claims that the downturn was mainly owing to hefty cuts in state spending.
“At best, the prospects remain uncertain and achieving sustainable above-trend economic growth remains a distant prospect,” said Neil MacKinnon, economist at VTB Capital financial group.