OBR forecasts could give Chancellor leg-room

The Chancellor could finally have leg-room to ease the austerity programme, according to the Office for Budget Responsibility (OBR).The office, set up by the Treasury to monitor the government's spending plans, is predicted to announce today that the extra £23bn of austerity measures earmarked in November last year will not be needed.

Economists who see greenshoots within the UK economy in recent months believe the OBR may raise its 0.7% forecast in 2012 by just 0.1% to 0.8%. Even this small percentage rise will convince the markets that the Chancellor can continue to meet his fiscal challenge of clearing the structural deficit by 2016-17.
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On Monday, the thinktank Ernst and Young ITEM Club gave the Chancellor a pre-Budget boost by claiming public sector net borrowing would only be £120bn for 2011-12, around £7bn less than predicted. It said tax recepits for 2011-12 should come in £3bn above forecasts, as corporation tax receipts rose by 6.3% for the same period last year. This gave the Chancellor "plenty of wriggle room", it added.

However the figures have been inflated by an accounting windfall in 2012-13 caused by the government bringing the Royal Mail pension fund onto its books. Taking on the postal service pension deficit will show up on the Budget because the Treasury inherits the assets of the scheme. The Treasury has said this one-off accounting change worth £28bn will overshadow the OBR's forecasts, and will shave another £1bn off the structural deficit by cutting future interest payments.

However the recent downgrade on the UK economy's outlook from stable to negative by rating agency Fitch hangs over any decision by George Osborne to take his foot off the pedal of the deep spending cuts. Fitch blamed "high and rising government debt" for its decision and UK unemployment stands at 2.88m and rising.

Huffington Post Budget 2012

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