Growth is everything

Apparently the OBR is predicting average growth of 1.5% a year over the next 5 years. The average over the 20 years before the credit crunch was 2.5%, so the future is already pretty grim, and the OBR forecasts are pretty optimistic. The Bank of England is, as the IFS points out, much more pessimistic.

Why does this matter? Well, both the Tories and Labour have promised to bring down debt within 5 years, already the margin of error the government set of £9 billion in 2029 is looking very small and lower growth than expected last year has already almost wiped it out.

To be frank if the OBR is right it might just be possible, if the Bank of England is right the target will be missed by £28 billion. But if we got growth back to the trend of 2.5% the UK would hit the target easily without the need for planned tax rises or spending cuts.

As the Institute for Fiscal Studies puts is pithily, “Well-designed policies can help to boost growth. But we should not bank on them swiftly delivering a return to 1990s growth rates”

The alternative is that the next Chancellor might just get lucky but then “relying on good fortune is not a strategy. “

In short whoever wins this election will inherit forecasts that are very unlikely to survive the test of time and which are already based on totally implausible spending cuts.

So, either we learn how to grow faster very quickly or borrowing or taxes will have to be much higher.

Jonty’s Jottings

Economics, trade and Brexit, not necessarily in that order but the dog always comes first.

By Jonty Bloom Media