Cutbacks ‘did not slow down growth in UK’

AUSTERITY is not to blame for the longest downturn in more than 100 years, the independent budget watchdog said yesterday.

The Office for Budget Responsibility (OBR) blamed weaker than expected growth over the past three years on high inflation, a slump in business investment and sluggish demand for exports.

It said tax rises and spending cuts ‘could have had a bigger impact on growth than we anticipated’ at the time of George Osborne’s emergency Budget in June 2010.

But it added: ‘This still does not look the most obvious explanation. There are a number of more plausible explanations for this weakness.’

The assessment came as the National Institute of Economic and Social Research said the economy grew by 0.8 per cent in the third quarter of the year – up from 0.7 per cent in the previous three months and 0.4 per cent in January-March.

But the think-tank added that the economy was still 2.5 per cent smaller than it was before the recession struck in early 2008, meaning Britain remains in the longest downturn for more than a century.

Gross domestic product has

‘More likely explanations’

grown by only 3.2 per cent since mid-2010, compared with the OBR’s forecast of 8.9 per cent.

But the watchdog’s report is a boost for the Chancellor and will dent Labour claims that the prolonged downturn is due to austerity. It came a day after the International Monetary Fund ditched its criticism of Mr Osborne’s plan and raised its growth forecasts for the UK.

The IMF said it now expects the economy to grow by 1.4 per cent this year – double the rate projected in April when it accused the Chancellor of ‘playing with fire’ by pressing ahead with his plan to eliminate the deficit.

The Treasury welcomed the OBR report and repeated its claim that ‘the UK economy has started to turn a corner’.

A spokesman said: ‘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 more likely explanations for slower than forecast growth is the impact of higher global commodity prices, the euro crisis and the ongoing impact of the financial crisis.’

Shadow Chief Secretary to the Treasury Chris Leslie said: ‘For millions of working people still seeing prices rising faster than wages, this is no recovery at all.

‘To catch up the lost ground since George Osborne became Chancellor we need 1.4 per cent growth every quarter between now and the next election.’