Worse than the Weather: Upbeat Growth Forecast Stands Out Amid Gloom
Feb 12, 2025
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Benjamin Caswell, Senior Economist at the National Institute of Economic and Social Research, dives into the UK's economic outlook. He contrasts a bleak forecast from the Office for Budget Responsibility with his more optimistic projections. The discussion highlights the importance of fiscal stimulus, especially for the NHS, and the anticipated 1.5% growth rate. Caswell emphasizes the potential for recovery, urging patience and strategic reforms to unlock growth despite rising costs and fiscal hurdles.
The Office for Budget Responsibility has downgraded growth expectations, causing concerns over the Chancellor's ability to follow fiscal rules.
Contrasting growth forecasts highlight a potential 1.5% growth from NIESR, driven by government spending and improved exports amidst economic challenges.
Deep dives
Economic Growth Challenges in the UK
The UK government aims to achieve sustainable economic growth, which has become increasingly challenging given recent forecasts. Preliminary reports indicate a downgrade in growth expectations by the Office for Budget Responsibility (OBR), heightening concerns over the Chancellor’s ability to adhere to fiscal rules introduced last year. Specifically, the government's pledge to balance day-to-day spending with tax revenue is under pressure, especially as the economy is projected to shrink slightly. Such an economic outlook raises the possibility of difficult decisions, including potential spending cuts or tax increases.
Divergent Economic Forecasts
A contrasting growth forecast from the National Institute of Economic and Social Research (NIESR) projects a more optimistic 1.5% growth for the UK this year, driven by increased government spending and improved net exports. This forecast stands in stark contrast to the Bank of England's more pessimistic outlook, which cites low sentiment and concerns over energy prices as factors influencing its downgrade. NIESR argues that the fundamentals of the UK economy remain strong, and that previous pessimism may overlook the potential impact of forthcoming fiscal measures. The expected government investment, particularly in the Health Service, is viewed as a significant driver of this potential growth.
The Role of Government Spending and Business Confidence
The podcast emphasizes the importance of forthcoming government spending in driving economic momentum, while also addressing concerns about the impact of increased national insurance contributions. Increased government expenditure is expected to require time to manifest in productivity improvements, particularly in the NHS. Despite short-term challenges, there is an assertion that better sentiment, recovery in business investment, and improved statistics may emerge as the fiscal stimulus takes effect. The discussion highlights the UK’s capacity for investment and potential for long-term growth, contingent upon effective policy measures and renewed business confidence.
Bloomberg has learned that Rachel Reeves has received the latest economic forecast from the Office for Budget Responsibility, and it's not good. The fiscal watchdog has downgraded growth, putting the Chancellor at risk of breaking her fiscal rules. The National Institute of Economic and Social Research has a more upbeat view. We hear from Niesr's Senior Economist Benjamin Caswell. Hosted by Stephen Carroll and Yuan Potts.