LONDON (MNI) – The UK economy is set to see little growth until the
second half of next year, and without the additional spending cuts
unveiled in the Autumn Statement the government would not have achieved
its fiscal mandate, Robert Chote, chairman of the Office for Budget
Responsibility, said Tuesday.

Chote said the OBR was forecasting growth would fall 0.1% on the
quarter in Q4, and rise just 0.1% in the first quarter of next year. He
put the chances of a technical recession, two successive negative
quarters, at around 1 in 3. The OBR projections show how the government
has been forced into further spending cuts.

“We expect the underlying momentum of the economy to weaken further
during the final quarter of this year but then to pick up gradually next
year, assuming that the euro area struggles through its current
difficulties,” Chote said.

“Even so, we forecast little increase in headline GDP until the
second half of next year,” he added.

The OBR has cut its estimates of both the amount of spare capacity
in the UK economy and the level of potential output.

“The economy’s productive potential has increased unexpectedly
slowly since the end of the recession,” Chote said.

By 2016 the OBR is predicting the economy will be about 3.5%
smaller than it had anticipated in its March forecasts, he said, driving
its borrowing forecasts higher.

“The additional borrowing is structural rather than cyclical. We
don’t expect it to be reversed by stronger economic growth further into
the future,” he added.

The Governments’ fiscal mandate is to eliminate the structural
budget deficit using a five year, rolling target. Back in March, the OBR
showed a 0.8% of GDP surplus five years out, but the comfort margin
evaporates on its latest forecasts.

“As a result of the widening structural budget deficit, and in the
absence of any policy decisions in the Autumn statement, we estimate
that the government would have been on course to miss the fiscal mandate
by about 0.3% of GDP, of Stg6 billion, in 2016-17,” Chote said.

“But by penciling in an extra cut in spending on public services of
roughly 1.5% of GDP, or Stg30 billion … it put itself back on course
to meet the mandate,” he added.

Chote also warned that unemployment could pick up in coming months,
with a jobs shakeout over the winter.

— London newsroom: 00 44 20 7862 7491; drobinson@marketnews.com

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