29 Nov 2010

Headlines from the Office for Budget Responsibility forecasts

Initial bullet points from the OBR, pre press conference.

160,000 less public sector jobs will be lost than originally calculated. Overall the government’s austerity plans is forecast to cost 330,000 government jobs, versus 490,000 calculated in June. Of this 130,000 of the “saved” jobs arise because the Spending Review was marginally less harsh than expected, after Mr Osborne cut more from welfare spending and less from government departments.

The unemployment rate will peak at 8 per cent next year.

Private sector employment growth of 1.5 million is predicted to far outweigh the hit to public sector jobs.

Growth will be higher this year, as construction in particular has boomed, but this is viewed as “unsustainable” and the OBR calculated that there will be a 0.2 per cent reduction in the Q2 growth figure as a result of statistical issues.

Growth will be lower in subsequent years in 2011 and 2012, as a result of the spending review decisions and the constrained credit environment.

Growth this year has been borrowed from next year, and there will be particularly weak growth in Q1 2011 as the VAT rise hits.

Roughly a 15 per cent chance of a double dip early next year, from my view of the OBR’s fan chart graph.

Growth assumed to be underpinned by an export-led recovery, in turn underpinned by effective depreciation of sterling in 2007. This effect yet to be actually seen.

Massive growth in debt servicing costs, much higher than expected, of nearly 80 per cent, down to the costs of index-linked gilts.

Welfare cuts will lead to poorer people spending their savings.

Ireland bank exposure of £82 billion is “a risk to our forecast”.

George Osborne has a more than a 50 per cent chance of hitting his own, self-set fiscal targets. Some might see a pre-election war chest for tax cuts of a few billion in these figures.