Andrew Smith, Chief Economist at KPMG in the UK comments:
"It’s déjà-vu all over again. Only a few months after significantly downgrading the outlook for the economy and the public finances in the Autumn Statement, the Office for Budget Responsibility has again taken out its red pen, halving the growth forecast for this year.
"Worse, the OBR no longer expects weaker growth now to be followed by a catch-up in the future – meaning that more of the budget deficit is structural. Back-end loading much of the required corrective measures is sensible, but the spending cuts accumulating for the next Parliament are approaching titanic proportions and the fiscal rules are being stretched to breaking point. The fiscal mandate may be met but, with the net debt target effectively suspended, it has lost its anchor.
"It is now clear that ambitious deficit reduction is stunting growth. Hemmed in by what is left of ‘Plan A’, today’s measures amount to little more than rearranging the deckchairs – this budget may be technically neutral but the fiscal stance remains strongly contractionary.
"Can “monetary activism” compensate for this “fiscal responsibility”? The Chancellor is hoping that a change to the Monetary Policy Committee’s remit will result in a revitalised monetary policy. However, with official interest rates at pretty much rock bottom, the MPC has already fired its best shots. By definition “unconventional policy” is untried, untested and uncertain.
"Meanwhile, sluggish growth, at best, looks set to persist as households remain weighed down by excessive debt and the Government continues to cut back. There is a small but welcome boost to public investment but hopes that exports and private business investment will come to the rescue depend crucially on strengthening overseas markets – something over which neither the Chancellor nor the Bank of England have any control."
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.