GEORGE Osborne delivered a fiscally neutral Budget yesterday – neither increasing nor decreasing the level of demand in what is a pretty moribund UK economy.
The OBR (Office for Budget Responsibility) expects that the UK will avoid a triple-dip recession, but it will be a close-run thing. And there is a question around the credibility of its forecasts.
As of yesterday, its estimate is that UK growth will be 0.6 per cent in 2013. Back in 2010, the OBR forecast was that the UK economy would be growing at a very healthy 2.9 per cent in 2013.
This is a huge revision to its original forecast and may once again signal that the OBR has failed to read the runes properly.
With growth becalmed, debt continues to grow. At the beginning of 2003, the value of UK net debt was equivalent to 30 per cent of GDP.
By the time the coalition government took over, it had risen to 58 per cent of GDP.
In March 2011, its money value passed the £1 trillion mark.
The OBR forecast is now that its value will reach 75.9 per cent of GDP this year and 82.6 per cent by 2015.
Between 2008 and 2015, the UK government will have borrowed the equivalent of 40 per cent of UK GDP to keep public services running.
This is the kind of growth in debt that worries the rating agencies.
OBR forecasts have a tendency to revert to trend. Over the past 50 years, trend UK growth has been between 2 and 2.5 per cent.
So there is no surprise that the OBR forecast is for 2.3 per cent growth in 2015, rising to 2.8 per cent in 2017.
Consumer spending is expected to recover in 2014 and continue to drive GDP growth through to 2017, when it will be increasing at 2.8 per cent.
Business investment is expected to grow by 8.6 per cent each year from 2015 to 2017.
The danger in all of this is that forecasts which simply revert to trend do not pick up the extent to which this recession has changed the rules of the game.
For example, consumers have much lower levels of confidence than they have had five years after the beginning of past recessions.
They are still trying to reduce their indebtedness. And businesses had much better access to credit five years after the beginning of a slump.
Rapid growth in investment from 2015 onwards will require a rapid turnaround in business sentiment and credit availability.
As a consequence of its forecast of strong GDP growth, the OBR is able to predict that public-sector net debt as a percentage of GDP will be falling in 2017-18 – meeting the second part of its “fiscal mandate”.
But the debt will still be above 80 per cent of GDP, causing debt interest payments to grow from around £50bn in 2013-14 to £72bn by 2017-18.
And as a result, anyone who expects a significant relaxation of controls on public spending in the rest of this decade is likely to be seriously disappointed.
• David Bell is a professor of economics at the University of Stirling.