Beyond the headline-grabbing combination of a penny off a pint of beer and the partial creation of a British variant of Fannie and Freddie, there is a deeply-disturbing subtext to the fiscal arithmetic in Wednesday’s UK Budget. It reflects an admission from the Office for Budget Responsibility that the underlying growth rate of the UK may be weaker than had been previously assumed.
True, the OBR’s central projections contain the usual medium-term optimism, with an ugly duckling 0.6 per cent growth rate in 2013 transformed into a swanlike 2.8 per cent growth rate in 2018. Nevertheless, the OBR admits that “a key risk is that potential output turns out to be lower at the end of the forecast than we currently assume”, a result that might have devastating consequences for the budgetary arithmetic. Continue reading »