Commenting on today’s Autumn Statement, Andrew Smith, KPMG’s Chief Economist, said: “After three years of almost continual downgrades to the growth outlook and corresponding increases to government borrowing projections, Mr Osborne was able to announce exactly the opposite - a double whammy of higher output and lower borrowing projections.
“1.4% growth this year, double the Office for Budget Responsibility’s March Budget forecast, is pretty much in the bag and next year’s forecast of 2.4% could start to look conservative if this cycle follows the normal pattern. Just as forecasters generally underestimate the depth of the downturn, they also underestimate the speed of upturns.
“The wrong sort of growth? Purists may complain that the recovery is over-reliant on the consumer, but with household spending accounting for some two-thirds of total demand, it is inevitable that consumption has to do the heavy lifting in the early stages.
“And as a consequence of the more buoyant economy, government borrowing this financial year is expected to be as much as £9bn below budget. But even so, the deficit is running at double the rate projected in 2010 and the Chancellor still looks set to miss his supplementary fiscal target– that total outstanding public sector net debt should be falling as a share of GDP in 2015-16.
“Despite announcing a raft of business friendly measures today the Chancellor was clear that austerity has a long way to go. In that, Mr Osborne has stuck to his austerity guns, banking the “windfall” with the knock-on effect of lowering the whole future deficit and debt profile.
“The one thing which could transform the outlook for the public finances would be a significant catch-up of the output, and hence the tax revenue, lost in the last five years. But given uncertainty about the amount of spare capacity in the economy the OBR is reluctant to assume a sustained period of above-trend growth and it is early days to start counting too many chickens.”
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