Comment: Raining on OBR’s optimistic forecasts

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 Chancellor’s forecast is that its value will reach 75.9 per cent of GDP this year and 82.6 per cent by 2015.

Since 2008, the UK government will have borrowed the equivalent of 40 per cent of GDP over and above the revenues that it has received from taxes to keep public services running.

The principal reason for the burgeoning debt is the continuing weakness of the economy. Economic growth is forecast to be 0.6 per cent this year. When the coalition made its original debt recovery plan, the Office of Budget Responsibility forecast that GDP growth in 2013 would be 2.9 per cent. Last December it was reduced to 1.2 per cent by the OBR. But it seems that once again the OBR has failed to properly read the runes.

The OBR expects that consumer spending will start to recover in 2014 and be the main engine of growth through 2017 when it will be increasing at 2.8 per cent. Whether this properly reflects the negative effect of the continuing unwinding of consumer debt remains to be seen.

Business investment is expected to grow by 8.6 per cent each year from 2015 to 2017. This will certainly require a sudden and very marked change in business confidence.

Let’s hope it happens and that the OBR isn’t once more erring on the side of optimism.