Another blow for George ahead of Budget day

OECD suggests that growth will be lower than forecast.

By David Blanchflower Published 16 March 2011 15:00

The Organisation for Economic Co-operation and Development (OECD) has just published its latest UK economic survey. Though it reads as if it was written by one of George Osborne's advisers -- it's very supportive of the coalition's misguided fiscal austerity programme -- there is bad news for the Chancellor buried deep inside the report.

The OECD is now forecasting GDP growth of 1.4 per cent for 2010, 1.5 per cent for 2011 and 2.0 per cent for 2012. The Office for Budget Responsibility's numbers from their November forecast were 1.8 per cent, 2.1 per cent and 2.6 per cent respectively. This suggests that, embarrassingly, Osborne will have to lower his growth forecasts in his forthcoming Budget. The coalition's economic policies are hurting growth so let's hope he has some really good measures to stimulate it in that red box. I have my doubts.

If you dig deeper still, it becomes clear that things are much worse even than that. The OECD forecast on which these GDP numbers are based looks overly optimistic on net trade, consumption and investment and especially on unemployment. The OECD forecasts that unemployment in 2011 will be 7.7 per cent on a day when unemployment hit 8 per cent and despite the fact that it increased by 38,000 between November and December last year. Unemployment will continue to rise throughout the year as austerity hits and hundreds of thousands of public-sector workers are fired.

We should put the OECD's forecast into context because the organisation has a very poor history of forecasting the performance of the UK economy. In a 2009 report, it forecast that the unemployment rate for 2010 would be 9.7 per cent with a GDP growth rate of 0.0 per cent and CPI inflation at 1 per cent. The actual numbers were GDP growth for 2010 of 1.5 per cent; the unemployment rate was 7.9 per cent and CPI inflation was 3.3 per cent. So their forecasts need to be taken with a large dose of scepticism.

Today's report also contains some evidence on happiness and well-being, which should please David Cameron, until his advisers explain the details to him. The report found that well-being measured by self-reported life satisfaction in the United Kingdom is around the OECD average. But on page 127 (in Table 3.A2.1 to be precise), the analysis shows that rising unemployment, falling real incomes and rising inequality all lower happiness. So -- surprise, surprise -- austerity is going to lower happiness.

The OECD is officially confirming my view that the coalition is bad for the nation's well-being!

More from David Blanchflower

View the discussion thread.

40 comments

Thu, 2011-03-17 21:40 — mike555

@Matt

"Come on Mike555, that isn't even an answer."

It's a lot more of an answer than I get out of you. It's a shame you don't seem to understand the impact of the house price boom under the last government.

Wed, 2011-03-16 20:44 — Eddy S (not verified)

yeah OECD says growth will be subdued but it supports the austerity programme and action taken against the defict.

it also says with subdued growth, interest rates should be kept lower and increased very gradually - good news for anyone with a mortgage.

Wed, 2011-03-16 20:50 — matthew fox (not verified)

I wish Mike555 would read far more interesting articles.

Shame he missed the BCC report downgrading economic growth and forecasting an increase in unemployment in 2011.

It is a shame Mike555 missed the article, which stated earnings growth is running well below inflation and it is a triple shame Mike555 missed an interesting article which stated councils are having to use £20 million of their reserves, in order to fund higher petrol and diesel costs.

I hope Mike555 is aware that the Government are expecting councils to raid their reserves, in order to fund the cut in government grants.

Thu, 2011-03-17 22:03 — Luddite (not verified)

Thanks to that one-eye bandit, our economy became far too over reliant on the twin bubbles of financil services and the property market. Labour will remain hopeless at financial management until Labour understand the fundamentals, you can't spent what you no longer have and you can't borrowing your way out of debt. In order to spend wealth first you must create wealth. Even matthew fox, could work that one out, well maybe!!

Wed, 2011-03-16 20:50 — clearhead? (not verified)

Dare i say we need our own revolution here and re-instate grey haired politicians. For the three most important men in the country lack this basic yet serious attire (yes William Hague is included!) I am disturbed to see such young, inexperienced and arrogant (Hague excluded )Tory boys pushing through the barrier of sense and pretending that toothfairies will put wads of money under people's pillows after they cut their jobs so that the same unemployed lot can kick start the recovery with their 'frivolous' spending so as to meet Mr Osbourne's perfectly thought out growth projections...oh boy another 4 years of nightmarish bed time stories to go...

Sun, 2011-03-27 16:13 — matthew fox (not verified)

" Before my time "

Not much of defence old chap, so you have never heard of Howe, Lawson or Major?

Shame you can't face that fact there was a housing boom 1979 to 1990, according to you housing booms are socially and economically divisive, so why was Thatcher's housing boom not?

Keep digging old chap, it looks like China or bust in your case.

Wed, 2011-03-16 20:53 — mike555

@Matt

"Shame he missed the BCC report downgrading economic growth and forecasting an increase in unemployment in 2011. "

Nope, didn't miss any of that lot Matt why do you say so? What has that got to do with house prices being high anyway?

Sun, 2011-03-27 16:53 — mike555

@Matt

"Not much of defence old chap, so you have never heard of Howe, Lawson or Major?"

I don't need to defend the Tories it's not my job or desire. I wasn't an adult during that time so I didn't live through it the way I did the next boom. I see you haven't defended your posts or the boom in house prices under Labour.

What I do know is that house prices in 1997 were fairly reasonable in many parts of the country.

The boom you talk of from 1979 to 1990 doesn't change what happened to house prices under New Labour, it's ancient history , the last boom in house prices has yet to uwind that's why it is more relevant.

I'm sure it was divisive and caused a lot of people harm. Shame you can't seem to see that about the boom under Labour.

Tue, 2011-09-20 07:56 — Federico

Those responsible, and those who supported it, know the inevitable consequences - you cant keep borrowing forever. Lucky for the Labour elite they can use public money to win votes of sections of the population - its nothing to do with economics.

Wed, 2011-03-23 20:30 — matthew fox (not verified)

Poor Mike555, doesn't know how to use a calendar, shoots himself in the foot with CGT and has no problem with Luddite's swearing and vicious jokes about Gordon Brown's eyesight.

Mike555 keeps banging on about house prices and the Labour Housing boom
(1997-2010). If our resident bozo, had taken the time to research house prices, he would have noticed house prices declined in both 2008 and 2010, something Mike555 fails to acknowledge.

When Mike555 gets round to researching house prices, he will be well aware of the 1979-1990 housing boom. For some reason, the Thatcher housing boom doesn't count in Mike55 eyes.

Thu, 2011-03-17 23:23 — Chris (not verified)

@mike555

"Something should have been done to nip the housing boom in the bud years ago when it was obviously a problem, what were those in charge doing about it?"

We've been over this a thousand times, the house price boom wasn't the cause of the great recession. While you're obviously upset because you missed the boat and carried on renting when you should have invested in a house, it won't help anybody if house prices crash even further. All that will do is put people in negative equity and onto the streets.

Wed, 2011-03-23 22:36 — mike555

Here is what I actually said about swearing and jokes about eyesight:

"I don't condone people having personal pops or swearing, it's not for me to police this forum."

"Of course I don't find sight in one eye a source of amusement."

Matt how can you take these comments as as having no problem with swearing and jokes about eyesight?

Thu, 2011-03-17 23:50 — Livers (not verified)

Luddite - "one-eyed bandit" ? I don't usually rise to odious bigots but you really are a c*nt.

Wed, 2011-03-23 22:31 — mike555

@Matt

"Poor Mike555, doesn't know how to use a calendar, shoots himself in the foot with CGT and has no problem with Luddite's swearing and vicious jokes about Gordon Brown's eyesight."

Pathetic Matt. Is that the best you can do? I have more than dealt with all those issues as you shuold well know.

"(1997-2010). If our resident bozo, had taken the time to research house prices, he would have noticed house prices declined in both 2008 and 2010, something Mike555 fails to acknowledge. "

Nope Matt, I acknowledge there was a drop in house prices, never have I not acknowledged it. The drop in house prices was not nearly as much as it should have been though. I see you haven't posted up what happened to house prices between 1997 and 2010. In fact why not post up what happend to house prices between 1997 and 2007 while you're at it.

"For some reason, the Thatcher housing boom doesn't count in Mike55 eyes."

Before my time Matt, I probably would have complained just as much, doesn't change what happened after 1997. I don't defend the Tories (for the umpteenth time).

Wed, 2011-03-23 22:42 — mike555

As for Matts comments on CGT, all anyone needs to do is read this article, one can only wonder how Matt comes to his assumption how I shot myself in the foot:

http://www.newstatesman.com/2011/01/inflation-bank-england-raise

Fri, 2011-03-18 02:20 — Jon Meldrum (not verified)

@ Chris - "...you should have invested in a house...".

Nonsense - houses are not investments, they are devices for containing heat and keeping rain out. I'm sorry but if you can't think about the consequences of your arguments then you belong on the Daily Mail fora, not here.

@ Luddite, "...you can't borrowing your way out of debt...".

The deficit emerges because of a collapse in tax take, not the profligacy you impute - so why removing the automatic stabilisers (austerity) should increase demand in the economy, I'm not exactly sure. Get thee to the Daily Mail fora!

@ Matthew - why are you obsessed with Mike555 and what is wrong with Mike caring about house prices?

@ Mike555 spot on as usual.

Fri, 2011-03-18 07:50 — Luddite (not verified)

That criminal stole from Peter to pay Paul, that criminal destroyed the retirement plans of millions, squandered billions went mad with the nations credit card, rewarded the idle, gave his backing for Labour's illegal wars, and still some idiots defend him, many in the Labour party are still in denial.

Tue, 2011-03-22 12:28 — Robert Taggart

A blow for Balls ahead of budget day - less people trust him to run the national coffers. This gives one more faith in the proletariat !

Tue, 2011-03-22 13:45 — Richard (not verified)

@Indu Pendent

"A question no one on this site has been ever able to answer is what did our kids get for the money the last government borrowed and spent?"

Well my daughter was born (11 months ago) in a good NHS maternity ward, with great staff and good equipment. She's had the child trust fund. She went to a couple of sessions at a surestart centre (before it seriously scaled back what it offered for monetary reasons).

When she grows a bit she will probably go to a school that was scheduled to be rebuilt, but now won't be.

To be honest I'd prefer to live in a society that valued these things.

Thu, 2011-03-17 07:50 — Luddite (not verified)

What the OECD report also said was the appalling record deficit which hit £156billion under the last Labour government, or 11 per cent of GDP – must be addressed now and warned that any delay would be disastrous for the economy. Looks as if New Labour apologists are playing the short-term card again. Who ever said 'Labour's debt' reduction would be easy or painless?

Thu, 2011-03-17 09:09 — TWAludditeT (not verified)

Blah blah blah blah blah, I dun a brown not in my pants blah blah blah I blame Brown and Ed Milliband why dont they come over to my house and wipe the crap from my lips.

Fri, 2011-03-18 14:15 — LingdalesFinest

I thought that the NS blog would contain informed debate and not petty squabbles regurgitating snapshot statistics.

Labour tried to spend as much as possible and improved overal public sector services but you can't keep throwing that amount of cash at it forever and our debt does need tackling. It is unsustainable and the fact the Conservatives are using this to just their ideology is to be expected. Hopefully the LibDems can temper this to some extent...

Also, the economy is still actually growing and has been for some time now. The downgrade was expected but then there was news of additional savings coming from the Quango cuts. I realise recession is a goldmine for the negatives out there but get a grip and deal with it.

Thu, 2011-03-17 10:07 — swatantra

'Things can only get worse .... under this Tory Coalition'. Simply Blue.

Thu, 2011-03-17 10:11 — Mr. Divine (not verified)

@Luddite: did the OECD recommended that the deficit must be addressed now? What words did they use to say this?

Looks like you're getting your own fan club.

Sat, 2011-03-26 21:19 — mike555

It's a shame Matt doesn't explain his bizarre logic.

Wed, 2011-03-23 00:42 — Ivan Miletitch

It has already beeen established that the poor are hit the hardest by tha ctions taken by this government.(Institue of fiscal studies, march 2011). The budget will only reinforce this, no big deal for Bullingdon Club member Osborne & his millionaire colleagues. One thing is certain, his mates will come out of all this much better off... the sad thing is that most of us will have paid for it !

Sun, 2011-03-27 19:26 — Reginald-Fah-fah

No-one could blame you for miss the budget! 1p cut on fuel will not make a difference with the rate of inflation and the VAT rise!

Fuel will be the best part of £2 pounds by Christmas!

Fri, 2011-03-18 19:19 — mike555

@Chris

"the house price boom wasn't the cause of the great recession"

I think there's a lot of disagreement over this, even if it didn't it didn't exactly help and it left many people in lots of debt and the lower paid priced out of the market.

"it won't help anybody if house prices crash even further. All that will do is put people in negative equity and onto the streets."

It would help lots of people and no doubt hurt others, just as house prices remaining high does, there's no win win situation here. People lose their house when they can't keep up the repayments, not when the nominal value of their house falls.

Fri, 2011-03-18 19:26 — mike555

@Jon

"Matthew - why are you obsessed with Mike555 and what is wrong with Mike caring about house prices?"

I've asked questions along a similar line but predictably haven't got an answer. I find it very strange but I suspect it's because the housing boom and what it's done to the working classes and low paid deosn't sit comfortably. It won't put me off posting though.

Fri, 2011-03-18 20:01 — Indu Pendent (not verified)

@David Blanchflower

We a living through the aftermath of the last Labour government. They bolstered the public sector with £350Bn financed by national debt incurred before 2008 and credit crunch.

It reallocated resources from the Private to the Public sector -- creating a public sector we can not afford and a diminished private sector ill equipped for the world market.

A question no one on this site has been ever able to answer is what did our kids get for the money the last government borrowed and spent?

Your economy theories were and are not followed by those who control the Labour party.

Wouldn't it be better to focus on leading a change in Labour's mind set?

Wed, 2011-03-16 15:37 — Dorian (not verified)

Nice article, not too heavy on the economics and understandable.

Wed, 2011-03-16 16:55 — mcquade

^^^^^^^^^^^^^^^
Can the NS please do something about the spammers that keep posting on here? Thanks.

Mon, 2011-03-21 21:34 — mike555

I hope Matts computer hasn't broken again.

Thu, 2011-03-17 18:57 — Luddite (not verified)

Mr Divine. Britain entered this recession in a far worse economic position than our leading competitors. Many countries entered this financial crisis with a surplus, others in balance. Britain under Gordon Brown's disastrous leadership entered with an appalling deficit that just kept getting bigger. New Labour squandered billions even before the credit crunch came along.

Wed, 2011-03-16 18:30 — Willy (not verified)

Buried deep in the first line of the very first table.

Wed, 2011-03-16 18:40 — John Howard Norfolk (not verified)

I consider the OBR numbers far too optimistic and agree with the OECD on umemploymemt numbers.

Thu, 2011-03-17 19:56 — matthew fox (not verified)

Come on Mike555, that isn't even an answer.

Still forget that housing boom post 1979.

If you where able to connect the dots, which you don't seem capable of, you would understand the impact of a slowing economy, does have a knock on effect on house prices, or is that a bit beyond your comprehension.

It is a shame you don't really understand the impact of high fuel prices has on local and central government, are you under the impression David Cameron Jag runs on Conservative hot air and pixie dust?

Wed, 2011-03-16 19:40 — Luddite (not verified)

The Organisation for Economic Co-operation and Development (OECD) has just published its latest UK economic survey, it's very supportive of the coalition's fiscal austerity programme.

Wed, 2011-03-16 19:46 — matthew fox (not verified)

Poor Luddite, how does he get is so wrong?

The British Chamber of Commerce downgraded economic growth to 1.4% and for good measure raised there unemployment figures to 2.65 million.

Wed, 2011-03-16 20:08 — mike555

Interesting bit in the report about housing market reforms and the lowering of asset prices. I'll believe it when I see it.

Something should have been done to nip the housing boom in the bud years ago when it was obviously a problem, what were those in charge doing about it?