NIESR: Budget 2012 and the OBR’s forecasts

22 Mar 2012 10:57 AM

Budget 2012 contained significant detail, much to be welcomed, but in aggregate the effect on the macroeconomy will be small.  The Office for Budget Responsibility (OBR) has taken the view that the policy announcements in the Budget are not significant enough to make a meaningful revision to its growth forecasts.



 It remains our view that the government could have addressed the weakness in demand this year with a temporary, targeted, timely fiscal loosening (i.e. slowing the pace of fiscal consolidation). However, the government remains wedded to ‘Plan A’.



The OBR quite rightly highlight the heightened uncertainty from the continuing Euro Area crisis as a major cause. Other components have been revised upwards to offset this. Although the OBR's view is now closer to ours, we still believe their outlook for business investment and the accumulation of inventories is too optimistic in the near term.



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