An excellent blog post by Duncan Weldon at False Economy argues powerfully that the real news yesterday was not the measures announced in George Osborne’s budget, but the economic numbers that accompanied it.
Despite Osborne hailing ‘a Budget for Growth’, OBR growth forecasts were revised down for last year, this year and next year.
Unemployment was revised up and is now expected reach over 8% this year. Alongside this inflation was revised up and average earning growth down. In other words prices will rise faster than expected, and wages slower – meaning the squeeze in living standards is set to intensify in 2011 and 2012.
The downward revisions to UK economic growth came despite the OBR revising world economic growth upwards – Osborne’s spending plans will continue to crimp UK economic performance.
The impact of all this on the deficit was predictable. It was revised upwards, with the government now expected to borrow an additional £45bn over the coming years.
Osborne’s ‘growth package’ – a further cut in corporation tax, some relaxation of planning laws and the creation of 20 1980s-style ‘enterprise zones’ – is unlikely to have a major impact. The OBR concluded that the effects of these measures would be ‘minimal’ and ‘unlikely’ to raise the trend growth rate of the UK economy. Despite this they were widely praised by many in the business community – but then who doesn’t like a tax cut?
But more extraordinary was his reference to a story from Reuters that credit ratings agency Moody’s had raised the possibility that the UK’s sovereign debt rating could be downgraded from its present AAA if slower growth and a consequent failure to reduce the deficit allowed the position in the UK to worsen.
It suggests that there are at least parts of the world financial community who see the UK at risk of falling into an Ireland or Portugal-like spiral of decline – directly as a result of Osborne’s economic policy and his apparent lack of grip.
It’s ironic when you reflect on Nick Clegg’s claim in his recent Liberal Democrat conference speech that the Coalition’s economic shock doctrine had ensured that control remained with the Government:
By cutting the deficit decisively we have restored confidence in Britain.
Essential – because without confidence there can be no growth.
We have helped keep interest rates lower for longer, helping families, helping businesses.
It has meant making difficult choices.
But at least they have been our choices…
Not forced on us by the bond markets as they have been in Greece and Ireland.
But the Moody’s announcement raises the prospect that the Coalition’s economic policies are producing precisely the conditions and uncertainties that Clegg claims to have avoided.