The latest forecast for the UK economy thinks there will be growth of around 6% for this Parliament, compared to the 13.2% the OBR forecast in June 2010. They attribute the worse performance largely to the weakness of the European economies, and slower growth world wide.
As a result of the slow down, they now forecast tax revenues some £50bn a year lower in 2014-15 than their June 2010 forecast. I have long argued that the forecast big surge in revenues looked problematic, especially given the higher rates. The Chancellor confirmed with some arresting figures in his Statement that the 50p tax band has cost the Revenue £7bn of tax income, as rich people have gone elsewhere to earn.
Total additional borrowing for the five years now comes out at £565 bn, not such a bad figure as feared. It is lower thanks to the large savings on interest payments, now amounting to savings of over £30 billion over the planned period. This compares with original forecasts of £451 billion extra borrowing this Parliament in the June 2010 figures. The extra borrowing has been brought on by loss of revenue. The higher spending forecast in 2010 is staying close to the original budgets.
Future growth rates depends crucially on changes in credit and money in the private sector over the next year or so, and over demand levels which will be affected by inflation. The future growth rate will be strongly influenced by progress in mending or bypassing the commercial banks. I will keep you posted of progress.