- 1 December 2010
Simon Ward, chief economist at Henderson Global Investors said The Office for Budget Responsibility "is probably too downbeat about economic prospects."
Ward says: "Forecast GDP growth of 2.4% per annum over the five years 2010-14 compares with 3.4% achieved over 1994-98 despite fiscal retrenchment on a similar scale.
"Claims that the private sector is in a weaker position to take up the baton than in the early 1990s are unconvincing: corporate finances are in better shape and households have been insulated from the consequences of higher debt by low interest rates, resulting in fewer arrears cases and repossessions.
"There were similar concerns about credit supply in the 1990s, following a large hit to banks' capital from residential and commercial property busts."
The basic story is that a below-par but sustained economic recovery combined with the coalition's tax and spending plans will return the public finances to sustainability by 2015-16. Growth will be constrained, according to the OBR, by tight credit conditions, desired private sector debt reduction and the fiscal consolidation itself.
As Ward points out: "One of the few significant amendments is a downward revision to the loss of general government jobs over the next four years, from 490,000 to 330,000, although – like all the numbers in the report – this is "subject to a large degree of uncertainty".
He adds: "Rather than a growth shortfall, the key risks to the fiscal outlook are that, first, the coalition fails to implement planned spending cuts and / or tax increases yield less revenue than expected and, secondly, higher interest rates boost debt servicing costs.
"A useful ready-reckoner table on page 117 of the report shows that each one percentage point rise in interest rates and inflation raises debt interest spending in 2015-16 by £10.7 billion, or 0.6% of GDP."
Mindful money Mortgage Tool Box
Looking To Re-mortgage
How Much Could You Borrow
How Much Is Your Home Worth
Find a Mortgage Advisor
- British homeowners collectively estimated to have £433bn in savings despite the paltry rates on offer
- Barclays and Lloyds top the City watchdog's complaints list of shame for the second half of 2014
- Mortgages approvals climb for the third successive month to reach a six-month high in February claims Bank of England
- Don’t ignore the benefits of financial planning - at the start of the tax year...
- Share tips: Five European growth “gems” you may have missed
- Mindful Money's weekly shares watch: Kingfisher, Marks & Spencer & Booker
- Revealed: The top five credit cards to use while abroad
- Just over 10% of retirees expect to cash-in on the pension revolution
- Child Trust Fund transfers to Junior ISAs go live next week but where should you invest?
- The Far East is the stand-out region within Emerging Markets claims Fidelity - where to invest...