I have repeated many times the likelihood that the economy will grow much more slowly than government OBR forecasts. I have said the government will borrow more than is desirable. I have called for a stronger growth strategy.
Last year’s figures showing just 0.8% growth were disappointing to the official forecasters. They expected 2.4% growth for 2011-12 in June 2010, reduced that + to 1.8% in March 2011 and to 0.6% in November 2011.
They are forecasting 0.9% growth in 2012-13 and 2.4% in 2013-14, down from 2.9% and 2.8% forecast in June 2010. The IMF has now downgraded its forecast for the UK to a lower figure for 2012. If 2012-14 growth is still overstated by say 1.5% over the two years, that adds another £10 billion to the deficit in the second year.
The government knows it needs to do more. It is still working on the credit easing scheme promised in the Autumn Statement. It has relaxed its borrowing limits to accommodate cash increases in public spending in every year despite the shortfall in revenues compared to budget. The government needs to intensify its search for better value for money in what it spends, and for less desirable budget items that can be removed or delayed.
It needs to relax the squeeze on the private sector which we have often discussed. Falling inflation will help. So would some reduction in tax rates, as we have argued before.
Above all the government needs to understand that it has to tackle the problems of the banks. There is not enough competition or capacity in HIgh Street banking in the UK. The government owns many of the important banks that service the businesses and public. It needs to split them up, create new competing banks, and float them off with sensible balance sheets so they can get on with the task of financing the recovery.