Geoffrey Dicks, an official in the newly formed Office for Budget Responsibility [OBR] told the Treasury select committee today that the recent budget has increased the likelihood of a double-dip recession.
He said that the cuts in public spending and higher taxes announced in the Budget in June will necessarily cut the forecast for UK economic growth and "logically increase the possibility of a double dip”. However contradicting himself, he also said he expected the economy to continue growing and the OBR's "best guess" was that the budget measures would not lead the country back into recession and trigger a "double dip".
Meanwhile OBR Chair Sir Alan Budd conceded that the logic of the OBR's downgrade in growth forecast from 2.6% to 2.3% in 2011 was because of the higher risk of a double dip.
MPs of every stripe had already accused Budd of being overly optimistic in the economic growth forecasts of 1.2% this year followed by 2.6% in 2011.
Commentators have argued that such figures will be difficult to achieve given the low demand in the Eurozone for UK exports [or indeed any country’s exports] and the prospect of rising unemployment in the public sector and the need for the private sector to generate 2m jobs during a period of austerity.
Budd said there was a 40% chance that eventual growth would be one percentage point above or below his central forecast but given the low values of the forecasts a 1% decrease will be significant.
Budd and the OBR have come under intense scrutiny in recent weeks after the group produced forecasts for private sector jobs growth only an hour before prime ministers question time. He was accused of naivety in allowing his office to be used by the government to defend itself against attacks from the opposition and in a surprise announcement last week, Budd revealed that he was to quit as chair of the OBR after just three months.
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