Borrowing up, growth down – double blow for Osborne

By ERIKKA ASKELAND
Published on 18/03/2013 00:00

CHANCELLOR George Osborne faces a double blow ahead of the Budget this week as official forecasters are expected to downgrade UK growth and confirm an £8 billion borrowing overshoot, according to the Ernst & Young Item Club.

The Item Club said the Office for Budget Responsibility (OBR) is likely to slash its growth forecasts to just under 1 per cent for 2013 from 1.2 per cent.

Weak income tax receipts, disappointing revenues from the sale of the 4G spectrum and a lower-than-expected boost from the Bank of England’s asset purchase programme is also expected to see the OBR reveal that public borrowing has climbed to over £88bn this year – up from the £80bn forecast at the Autumn Statement.

Andrew Goodwin, senior economic advisor to the Item Club, said this year’s Budget forecasts would be politically “embarrassing” for Osborne.

He added: “Yet again borrowing is going to come in higher than forecast. The Chancellor is faced with having to backtrack on his earlier claim that borrowing will fall between 2011-12 and 2012-13 if the statistical fudges are excluded.”

But the Institute of Directors (IoD) defended Osborne’s deficit reduction strategy, arguing that the Chancellor has “done difficult, essential work so far”.

Simon Walker, director general of the IoD, said: “Chancellors should be judged on the tough decisions they make – not their popularity in the polls – so he must not budge an inch on the crucial job of deficit reduction. He also deserves praise for recognising that deficit reduction must be backed up by improved competitiveness, achieved through measures such as lower corporation and income taxes.”

Walker called for “radical steps” in the budget but added that the Chancellor “must ensure that where money is available for investment it is focused on specific priorities, not frittered away on a wide range of special interest schemes”.

The Item Club is calling for spending on a £10bn package of infrastructure projects in each of the next two years, even if this would require more borrowing.

Osborne is already under significant pressure after the UK lost its AAA rating following the recent Moody’s downgrade while the economy is on the brink of an unprecedented triple-dip recession after contracting by 0.3 per cent at the end of 2012.

Another report published today shows that the number of people finding permanent jobs in Scotland has fallen for the first time in six months, with the number of vacancies having grown at the slowest rate in a year.

The number of temporary jobs remained strong but slowed in February, the latest Bank of Scotland Report on Jobs said.

Pay also deteriorated with hourly pay for temporary workers falling “solidly”.

Donald MacRae, chief economist at the bank, said the results highlighted the “fragility” of the economic recovery.

He said: “The February barometer showed Scottish job market conditions continuing to improve but at a marginal rate. The number of people appointed to permanent jobs fell for the first time in six months, while the growth in vacancies for permanent jobs was the slowest for over a year.

“These results highlight the fragility of the recovery from the recession.”