British Chancellor says economy on the path to recovery
British Chancellor George Osborne on Monday welcomed new figures on the British economy which showed it growing more strongly than expected and debt expected to fall.
Osborne said: “It’s clear that our decisive actions prove we can live within our means, this government has taken Britain out of the financial danger zone” and set the economy “on the path to recovery.
He pointed to a forecast that showed the cost of servicing the government debts is expected to fall by 19 billion pounds (about 29.6 billion U.S. dollars) over the period to 2015.
He added: “We took decisive action – the British recovery is on track; our public finances are under control, our economy is rebalancing.”
Chancellor Osborne was speaking in the House of Commons after publication of key economic data by the Office for Budget Responsibility (OBR).
The forecast from the OBR contained an upward revision of its summer forecast of 1.2 percent to 1.8 percent growth this year, on the back of two stronger-than-expected performances in the second quarter (1.2 percent growth) and the third quarter (0.8 percent). The British economy has now been out of recession for four quarters.
This stronger-than-expected growth was seen against a background of in-year government budget cuts of 6 billion pounds ( about 9.3 billion U.S. dollars) and the continuing effect of a sales tax rise that took place at the beginning of January.
Cuts and a further increase in the sales tax which come into effect at the beginning of 2011 mean that the OBR also cut the forecast growth for 2011 to 2.1 percent from 2.3 percent. 2011 first quarter is forecast to be the toughest, with expected growth of only 0.3 per cent.
The OBR also revised growth down from 2.3 percent to 2.1 percent for 2012, however it said there would be no return to recession.
Since the OBR issued its summer forecast the chancellor has introduced an autumn spending review, that saw 81 billion pounds lopped off government spending over the next four years.
This is the most drastic cutback in government spending since the Second World War, and saw 11 billion pounds taken off welfare spending, by far the largest area of expenditure in the government ‘s budget.
This cutback was not included in the OBR’s summer figures, and factoring it in now has meant the OBR has reduced its forecast for job losses over the coming four years as a result of government budget cuts from 490,000 to 330,000.
Public sector net borrowing is likely to fall from 148.5 billion pounds for 2010-11 to 18 billion pounds in 2015-16. By then, public sector net debt is expected to be 67.2 percent of national income, down 0.2 percentage points from the June budget forecast, said the OBR.
Osborne had specially chosen words for the money markets, reassuring them that the government would not change its austerity program. “This is an uncertain world, but the British recovery is on track. Employment is growing; 1 million more jobs are being created. We will stick to the course, it is the only way to help confidence to flourish and growth to return,” he said.
Osborne also confirmed details of the international assistance package for Ireland. A three-year package for Ireland worth 85 billion euros had been agreed, 35 billion euros for the banking sector, 10 billion euros for immediate recapitalization of banks. 50 billion euros will be available for sovereign debt support. 17. 5 billion euros would come from Ireland, and the remaining would be split three ways between the IMF, the European Financial Stability Mechanism, and bilateral loans a eurozone facility.
The chancellor said the British bilateral loan to Ireland is for 3.25 billion pounds, with interest rates similar to the loan from the IMF and the eurozone, and will “help one of our closest partners manage their way through difficult circumstances,” said Osborne.
Osborne also announced that from April 2013 there will be a new, lower 10 percent rate of corporation tax on profits from newly- commercialized patents, which would encourage business growth.
He said the move had already brought in 0.5 billion pounds of investment from pharmaceuticals multinational GlaxoSmithKline. He also announced a consultation program for corporate tax reforms, which would be aimed at attracting international investors and businesses.
He justified these moves, saying “stability is a necessary pre- condition for growth but it is not enough, competitiveness has been in a decline for over a decade, undermining its ability to create jobs and to grow.”
The OBR was set up by chancellor Osborne shortly after the new government took office in May, 2011 to make independent assessments of government spending and the economy. Previously, under earlier governments, such statistical predictions were handled within the government’s treasury department, leading markets and financiers to doubt the independence and reliability of their predictions.
Alan Johnson, the main opposition Labor party’s shadow chancellor, criticized the government’s economic policy in the House of Commons: “The chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future. The government has no alternative measures if the gamble fails.”
“Growth forecasts have been cut for the next two years as the momentum in the economy this year fails to feed through to future years,” he said.
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