The unravelling of the deficit strategy

Labour had a strategy for cutting the deficit – it was called GROWTH. The government’s strategy was to cut spending. The consequence of those cuts is undermining growth, and that now risks blowing apart the deficit reduction.

In last week’s figures, retail sales for the month of May slumped to their lowest level in 16 months.  There is a risk that growth is about to stall.

The OBR provided a pre-June Budget prediction of the 2011 budget deficit under Alistair Darling’s budget. So, with our libraries still open, with EMA, with future jobs fund, no VAT rise etc, the borrowing in 2011 would have been 8.3%.

OBR June 2010 predictions based on Labour’s deficit reduction plan

2010 2011 2012 2013 2014
Growth 1.3 2.6 2.8 2.8 2.6
Borrowing 10.5 8.3 6.6 5 3.9
Unemployment 8.1% 7.9% 7.4% 6.8% 6.3%

Since the June emergency budget, the OBR has consistently downgraded 2011 growth, and increased its prediction of government borrowing. The graph shows the changes.

The current predictions for growth of 1.4% will result in borrowing of 8.1% of GDP, just below that predicted for Alistair Darling’s budget. But, if growth falls to 1.1%, then the government’s cuts will not only all have been in vain, the cuts could plunge the economy into a Japanese-style high deficit deflation.

Tags: , , ,

3 Responses to “The unravelling of the deficit strategy”

  1. Richard T says:

    “Labour had a strategy for cutting the deficit – it was called GROWTH”

    Sounds great, lets have some detail.

    “The consequence of those cuts is undermining growth”

    What cuts?

  2. Sunny H says:

    This sounds suspiciously like what I’ve been saying for the past few months regarding Labour’s economic strategy. I’m slightly worried the “flat-earther syndrome” is spreading here!

  3. AmberStar says:

    David Cameron’s myriad u-turns on every issue are deliberate. They are paving the way for Osborne to do a u-turn on the economy.

Leave a Reply