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OBR forecast slows for 2011

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29th Nov 2010
Editor in Chief AccountingWEB
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The UK’s GDP growth was greater than expected in the middle of 2010, but is likely to underperform against previous Office of Budget Responsbility predictions for 2011.

In its Economic and fiscal outlook released on Monday, the OBR  upgraded its growth prediction for 2010 to 1.8% (up from the 1.3% predicted in June), but lowered its forecast for 2011 to 2.1%

According to the OBR, the “unexpected strength of GDP growth” was largely a timing effect that resulted from firms rebuilding their stocks more quickly than was expected in June. Construction growth has been “unsustainably strong” in the past six months. “Both factors should unwind and point to weaker near-term growth ahead,” the forecasters added.

“The economy will continue to recover from the recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s.”

The world economy also grew more strongly than expected, so while employment in the UK picked up more quickly than expected, so did inflation.

The OBR’s “relatively sluggish” medium-term outlook is partly affected by the VAT rate rise to 20% in January, which is likely to slow quarter-on-quarter growth to around 0.3% for the first three months of 2011.

Tax receipts will go up faster than the OBR predicted in June, but this will be offset in the medium term by lower Corporation Tax receipts and factors such as lower expected property prices, interest rates and oil prices.

Following the measures set out in the Chancellor’s October spending review, public sector net borrowing (PSNB) is likely to decline steadily as a share of national income from the post-war peak of 11.1% of GDP it reached in 2009-10 to around the 1% mark by 2015–16.

The full 158-page report is available as a 3.9MB PDF download from the OBR website, or as a more easiliy digestible Flash presentation.

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