Speaking to the House of Commons today, George Osborne said “the deficit is half what we inherited”, which is evidence to suggest “Britain’s long term economic plan is working”.
However, he said that “while the deficit is falling, it remains too high”, and as such the Government is still planning to tighten the public finances in order to pull the deficit down by a further 0.6% to reach this year’s deficit target of 5% of GDP, and next year’s target of 4%.
According to a revised forecast from the Office of Budget Responsibility (OBR), the UK’s GDP is forecast to grow by 3%, which is 0.6% higher than predicted a year ago.
Growth next year is forecast at 2.4%, then fluctuating between 2.2% and 2.4% until 2019.
Business investment has also risen by 27%, nearly eight times more than the prediction in the Budget.
Fastest growing G7 economy
Osborne also announced that the British economy had grown by 8% since the start of the Coalition, meaning it had grown faster than previously reported. This, he said, makes the UK the fastest growing G7 economy since 2010, seeing growth more than double that of Germany’s, increase three times faster than the eurozone, and seven times faster than France.
He stressed, however, that – with Japan in recession and with the “eurozone stagnating” – the "warning lights are flashing over the global economy” from which “Britain cannot be immune”.
Therefore, the chancellor emphasised it is “even more imperative” that British firms are connected to the “faster growing emerging economies of Asia, Africa and South America” and he added that he is providing a £45m package to offer support to first time exporters.
OBR also said it expects inflation to be down to 1.5% this year, 1.2% next year, and up to 1.7% the year after, before returning to its target of 2% in 2017, meaning there is lower inflation, lower unemployment and higher growth.
"Out of the red"
With borrowing falling every year, from £97.5bn last year to £91.3bn this year, and a prediction of £75.9bn next year, the chancellor said “we end in a marginally stronger position than expected at the Budget” with Britain now predicted to have a surplus of £23bn by 2019-20, meaning it would be “out of the red and into the black for the first time in a generation”.
Hermes chief economist Neil Williams, said: “Growth may be better, but there’s still some hard work to do on deficit and debt reduction. The fiscal screw will have to stay tight if Osborne is to whittle down the underlying budget deficit and return it to the black in 2018/19.
“GDP revisions have helped, but better growth should have squeezed the headline deficits by far more than they have. The deficit is still high, even including special items like the transfer of the Royal Mail Pension Plan and QE profits, the hoped-for 5%-of-GDP deficit for 2014/15 will still be the G7’s widest after Japan.
“Also, while the headline deficit falls on better growth, the structural, less growth-sensitive part of the deficit will fall by less, begging further reform and consolidation.”
