Office for Budget Responsibility -- Watchdog, or Just Hangdog?
The Office for Budget Responsibility has published a muted forecast for growth over the next three and a half years , which is bound to encourage spending anxiety amongst business leaders and consumers.
Revising the previous government's forecast for growth of 3.25 percent, down to 2.6 per cent in 2011, the Tory Party-appointed independent watchdog has given the government the ammunition it needs to push through massive spending cuts or a hike in taxes in the emergency budget later this month.
For all its hard-nosed attitude, the report will be cold comfort for consumers and businesses, wondering when it's going to be all right to start spending again. Consumer confidence is beginning to wane, now that government inducements to continue spending have been removed, as shown by flat growth figures for the first quarter of the year expected from Tesco and Sainsbury's this week.
Business investment is also unlikely to pick up, according to the OBR, rising minimally by the end of the year and not reaching pre-recession rates until 2013.
Spending by both these groups are important economic drivers which are influenced heavily by confidence in the future, and news that the economy is not going to pick up for another few years is going to do nothing for their readiness to put their hands in their pockets.
This sentiment can't be factored into the OBR's formula for the future, so while it's a step forward that government spending is now being measured against an independent view of what the economy is likely to do, are we basing our judgement on magic mathematical formulas, rather than the way people behave in the real world?
Let's hope the OBR is as good at spotting any unexpected pickup in the economy, and letting us all know about it, as it is at identifying the overlooked negative factors.