Wednesday, 3 November 2010


Finally got a moment to stop chasing my tail and comment on the UK growth figures of the third quarter. 

First the estimated 0.8% is good news.  It is down on the previous quarter but appears away from double dip territory. Locally, the question will be how spread is this growth across the country?  So far it hasn't been.

Second it raises further questions about the Office of Budget Responsibility.  Its estimates are the underpinning for the cuts programme and it appears its projections for this year at least have seriously underestimated growth. The Treasury projections that were much derided as over-optimistic appear to have called it better.

Third, if the strong growth continues it will have a political impact upon the cuts programme.  The sooner and more the economy grows the better for tax revenues.  This will open up a debate about how much of the spending deficit was genuinely structural and how much was caused by the downturn. 

However, depending on their scale better revenues don't necessarily solve all the problems.  There would be the issue of paying down the national debt.  There is also the nature of the cuts programme.  When the Coalition actually looked at departmental spending cuts it was not so easy hence why the axe was shifted to the welfare budget to provide more of the notional savings than originally planned.  Welfare cuts have proven notoriously difficult to deliver in the past.  Therefore, the potential benefits of extra revenues could be diluted by the inability to achieve the proposed savings but these potential pitfalls should not get in the way of what was good news for the UK.

No comments: