New UK fiscal watchdog to publish first forecasts

* Office for Budget Responsibility to give fiscal estimates

* Growth forecasts expected to show gloomier recovery

* Monday’s figures will hint at scale of austerity to come

By Matt Falloon

LONDON, June 14 (BestGrowthStock) – Britain’s new fiscal policy
watchdog is expected on Monday to pour cold water on the
previous Labour government’s hopes for a powerful recovery when
it unveils its first growth and state borrowing forecasts.

That, in turn, will hint at the scale of spending cuts and
tax hikes needed for the Conservative-Liberal Democrat coalition
to rein in a record budget deficit running close to 11 percent
of national output and among the highest in the developed world.

The figures from the independent Office for Budget
Responsibility, created by the coalition that took over from the
13-year-old Labour administration in May, are intended to
clarify the fiscal picture ahead of this month’s budget.

“The emergency budget on 22 June and the comprehensive
spending review this autumn is not going to be pleasant for
anyone as further major spending cuts and tax hikes are
inevitable,” said Howard Archer, an economist at Global Insight.

Archer said the coalition had been preparing “the public to
take the nasty medicine that the UK economy has to take for a
long time to get back to long-term fiscal health”.

The new forecasts arrive after revised official data showed
borrowing coming in lower than expected for the fiscal year
2009/10 at 156 billion pounds ($227.2 billion), but still at
previously unseen levels.

Britain’s economy also appears to have pulled safely out of
an 18-month recession but market turbulence over the euro zone’s
fiscal crisis and a continued lack of credit availability have
cast a shadow over future prospects for growth.

Investors can expect the OBR to cut Labour’s forecast for
growth above 3 percent next year and beyond.


As such, while near-term borrowing could look better, it may
not fall as fast as previously hoped over the next few years —
potentially providing further support for the hefty spending
cuts planned by Conservative finance minister George Osborne.

Monday’s forecasts are also likely to suggest much of
Britain’s borrowing is structural — pointing to sweeping
changes to the way the state budget is financed and run.
The OBR, expected to restore some credibility to UK fiscal
policy, will change the way estimates are made public, giving a
fan chart of likely outcomes for growth with one “most likely”
central forecast that will feed into borrowing projections.

Under Labour, the finance minister would outline two
forecasts: a headline one and a more cautious estimate that was
used for public finances calculations.

The range of possibilities for the economy, similar to that
issued by the Bank of England each quarter, will be based on
government policy at the time the coalition took power in May,
excluding the 6.2 billion pounds of cuts introduced since then.

The OBR, headed up by former Treasury official and ex-BoE
policymaker Alan Budd, will also go into some detail alongside
the headline figures for borrowing and growth.

Estimates for growth will include quarterly forecasts for
the near-term, sub-sector breakdowns for growth will be given
for several years and the OBR will reveal more of the factors
underpinning its judgements.

The document will also include a study of into the
sustainability of long-term government liabilities such as
public sector pensions and big public-private sector contracts.

Stock Market Investing

(Editing by Matthew Jones)

New UK fiscal watchdog to publish first forecasts