The Office of Budget Responsibility
has revised GDP growth upwards in its Economic and Fiscal Outlook for the year
from 1.2 per cent to 1.8 per cent.
This positive revision should come
as good news for the markets as it will hope to act as a vote of confidence in
UK markets and its ability to trade its way out of having the largest ever
However the forecast for 2011 has
been revised down to 2.1 per cent from 2.3 per cent and in 2012 from 2.8 per
cent to 2.6 per cent.
The Outlook also included a
revision on the number of public sector jobs to go.
The forecast in June said 490,000
jobs would have to go: this figure has been slashed to just 330,000 jobs.
However, if the government goes
ahead with plans to freeze total public spending in 2010/16, another 80,000
jobs will go that year.
The private sector should welcome
the news of reduced job cuts as they would have been expected to soak up a lot
of the public sector job losses when they hit.
The OBR expects “sluggish
growth” in the medium term due the increase in VAT and a package of
spending cuts which totals $125 billion.
While the upward revision should
provide confidence for businesses, the lowering of forecasts for 2011 and 2012
serve as a reminder that recovery from this recession will be slower than in
David Kern, Chief Economist at the
British Chambers of Commerce (BCC) that “while the new OBR forecast is
more realistic than previous official forecasts by the Treasury, we believe it’s
still too optimistic.
“The growth forecasts for 2011
onwards appear too ambitious, although we agree with the broad underlying
assumption that Britain’s medium-term prospects will gradually improve over
“The government must focus on
enabling the private sector to make 2011 a Year for Growth.”