Falling growth means “government will miss deficit reduction target”

A respected and independent think tank has predicted that growth in 2011 will be as low as 1.4 per cent – almost half the level originally predicted by the Office of Budget Responsibility in June 2010. The National Institute of Economic and Social Research predict that inflation will be up in 2011, tax revenues will be down, and the government will miss its deficit reduction target to balance the cyclically-adjusted current budget by 2015–16.

A press release from NIESR outlines their prediction that:

“GDP will grow by 1.4 per cent in 2011 and 2 per cent in 2012…

“Not until 2013 will the economy grow faster than its trend rate of 2.1 per cent. Growth this year will be constrained not just by the government’s spending cuts but by the squeeze on households from higher taxes and rising inflation. Consumer price inflation will reach 4.5 per cent this year, up from 3.3 per cent in 2010″

The chart below compares NIESR’s current estimate with successive predictions for 2011 growth by the Office for Budget Responsibility. The OBR have revised down the projection for 2011 growth three times since they published their first estimate before the Budget in June 2010.

Growth-projections-for-2011
The OBR were off track again last week when growth for the first quarter of 2011 came in at 0.5% – below the 0.8% they had predicted after the Budget. And there was more gloomy economic news this week with both construction and manufacturing slowing sharply in April. As respected economic commentators such as Martin Wolf and Robert Skidelsky have warned, lower growth impacts the Government’s ability to close the deficit. In line with this analysis, NIESR’s press release predicts that:

“The weak recovery will feed through to lower tax revenues. That will mean that even if the spending plans are met over the next four years, public sector net borrowing will fall only to 3.6 per cent of GDP in 2015–16 rather than the 1.5 per cent projected by the Office for Budget Responsibility. Likewise, the current budget will then run a deficit of 2.2 per cent of GDP compared with the OBR’s surplus of 0.2 per cent. We do not expect the government to meet its target to balance the cyclically-adjusted current budget by 2015–16.”

Angela Eagle MP, Labour’s Shadow Chief Secretary to the Treasury, said in response to the latest forecast, “NIESR is right to warn, as Labour has, that slower growth will mean lower tax revenues and so make it harder to get the deficit down.”

http://twitter.com/frances_coppola/status/65914814999965696 Frances Coppola

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/shamikdas/status/65915794667749376 Shamik Das

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/abelardinelli/status/65916240832626688 Alex Belardinelli

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/houseoftwits/status/65917435806613504 House Of Twits

RT @leftfootfwd Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/mr_pukeko/status/65919160433131521 Matt Jeffs

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/wimbledonlabour/status/65920624643670017 Wimbledon Labour

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://www.davnecnews.com/2011/05/house-prices-will-keep-falling-for-five-years-the-guardian/ House prices ‘will keep falling for five years’ – The Guardian | DavnecNews

[...] prices 'to fall for the next five years' in longest property slump for a …Daily MailLeft Foot Forward -Forexyard -IMarketnews.comall 12 news [...]
http://twitter.com/slasheduk/status/65952142023852032 SlashedUK

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
Iain Simpson

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/trakgalvis/status/66011564326653952 Trakgalvis

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
BenM

Does anyone believe anything spewed out by Osborne’s mega-QUANGO?

Get the daft rightwing indulgence abolished after the next election.
http://twitter.com/slasheduk/status/66030092752666624 SlashedUK

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
http://twitter.com/wdjstraw/status/66034997441724416 Will Straw

Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf
http://twitter.com/themainstand/status/66036647732576256 Brian O’Rourke

RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf
http://twitter.com/houseoftwits/status/66038240821510144 House Of Twits

RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf
http://twitter.com/davidward81/status/66039154265440257 David Ward

RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf
http://twitter.com/foolfromthehill/status/66043706628775936 A bloke from Norwich

RT @wdjstraw: Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf
Mr. Sensible

This shows more evidence that the government’s approach is hurting but not working.
Anon E Mouse

Will Straw – But not a “Double Dip” recession as Labour activists predicted since the election.

No wonder Ed Miliband is the least popular of the three party leaders…
http://twitter.com/falseecon/status/66061499717787648 False Economy

RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #falseeconomy
http://twitter.com/midlandstuc/status/66062216121688064 Midlands TUC

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http://twitter.com/derekjohnbryant/status/66062270890901504 Derek Bryant

RT @FalseEcon RT @wdjstraw Coalition warned that falling growth mns they'll miss deficit reduction target http://bit.ly/k8LHmf #falseeconomy
http://twitter.com/artuncut/status/66062842536787969 artuncut

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http://twitter.com/frdragonspouse/status/66062874421891072 Jill Hayward

RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …
http://twitter.com/kevinfenning/status/66070734132359168 Kevin Fenning

RT @leftfootfwd: Falling growth means "government will miss deficit reduction target" warns leading economic think tank http://bit.ly/k8LHmf
scandalousbill

Anon,

I would not be so quick to say the UK economy is out of the woods as of yet. The disappointing growth figure of GDP occurred with interest rates at 0.5%. With the risk of inflation, rates are bound to rise and the economy will be impacted.

Secondly, for the Tory coalition’s much touted business miracle to occur, you would expect business investment levels in the UK to be on the up, as this article by Brian Groom indicates, that has not been the case to date, and in fact there is a decided decline.

http://www.ft.com/cms/s/0/4d544786-69e5-11e0-89db-00144feab49a.html#axzz1LSotCEY6

These factors combined with other serious issues, such as the Global price of oil as the coalition cutbacks begin to take hold in the economy, IMHO, mean it hardly time yet to strike up the band in celebration.

The risk of a double dip recession cannot be dismissed out of hand at this point in time.
http://twitter.com/staffsunison/status/66073492113735680 Staffordshire UNISON

RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …
http://twitter.com/howardjackson09/status/66077093833875456 Howard Jackson

Good week for Cameron but fall is due. Prediction the deficit reduction target will be missed. Back to reality. http://t.co/uvLk1Tu
http://twitter.com/twotonestapler/status/66094145776791552 David Kirkham

RT @FalseEcon: RT @wdjstraw Coalition warned that falling growth means they'll miss deficit reduction target http://bit.ly/k8LHmf #false …
http://pragmaticgovernment,blogspot.com zenix

Of course what these predictions completely miss is that even if economic growth were to be at 0% for the next 4 years, the economy would still be getting better regardless. They forget that every day, the deficit is being reduced. Every day, the government finances are getting stronger. So, even if we had zero growth the economy would be getting better because we’d have the same amount of GDP, but a lower deficit. The same amount of GDP, but better public finances. the same amount of GDP, but a stronger private sector. The same amount of GDP, but a stronger, more dynamic economy. As long as the economy doesn’t contract then the govt. are doing the right thing, and with growth expected to be more than 1% this year that suggests that they aren’t close to throwing us into another recession just yet. http://bit.ly/jIhDjS
Anon E Mouse

scandalousbill – I don’t believe this government will cut anything like they say – Thatcher never did despite the rhetoric.

What I would say is that you and I regularly have this conversation and so far I’ve been right every time.

No serious economist ever predicted a double dip recession so I’m going with them…
scandalousbill

Anon,

When you say:

“I don’t believe this government will cut anything like they say…”

It certainly seems that you believe that the “too fast, too deep” position is correct. Are you now advocating that Osborne should develop a Plan B? Especially when things are going so well?

BTW, Dr Nouriel Roubini is one of the prominent economists, among a few, who has expressed concerns that there is a significant risk of double dip recession.

http://www.guardian.co.uk/business/2011/mar/11/roubini-double-dip-recession-warning

Of course, as he has been credited by many with predicting the global credit crunch, I guess he cannot be considered a serious economist.
Anon E Mouse

scandalousbill – I think that the government should cut harder and faster to clear our debts – to run an interest payment of £120 million a day is unacceptable.

Regarding what this government is doing I just don’t believe they will cut like they say. There doesn’t need to be a plan B – plan A is fine I think.

As for Dr Nouriel Roubini clearly he is wrong on the double dip so he can’t be that good I feel.

The sooner Labour supporters realise they are getting no traction on this point and apologise for the mess they left us in the better…
scandalousbill

But Anon,

“I think that the government should cut harder and faster to clear our debts”

Would not increasing the depth and rate of spending cuts be against the advice of most “serious economists” like those from the OECD?

The point Will makes in the article is the impact of stagnant growth in undermining Osborne’s objectives. Would not taking more out of the economy provide additional fetters to the already anaemic recovery?
Mathew

Anon

Do you even believe anything you type?

Ever heard of the Paradox of Thrift?

How would you of countered reduced consumer confidence?

Do you understand a fiscal multiplier?
http://twitter.com/myinfamy/status/66550349422538752 Daniel Pitt

Falling growth means government will miss deficit reduction target http://t.co/uvLk1Tu #ConDemNation
damon brown

oh yawn, the troll’s back with his big poky stick again, scuppering all attempts at actual conversation with his moronic drivel.

You neo-con’s must lead such empty lives if this is the only entertainment you can find.
http://twitter.com/wdjstraw/status/71122145165574144 Will Straw

@ian_bath Wrong. Cuts that go too far and too fast = low growth = rising deficit = more cuts. http://bit.ly/jgOLoX