At the beginning of the week, the CBI lowered its UK forecast for 2012 from 1.7 per cent to 1.3 per cent and continues to expect a lacklustre 2.2 per cent in 2012, which contrasts with the Office for Budget Responsibility’s (OBR) current forecast of 1.7 per cent (already down from the 2.6 per cent it forecast before the June 2010 Budget). The CBI’s downgrade is not surprising, given the poor results from the CBI Industrial Trends Survey, which found for the first time in two years that optimism regarding the general business situation fell among UK manufacturers.
Then the National Institute of Economic and Social Research (NIESR) lowered its growth forecast to 1.3 per cent in 2011 and 2.0 per cent in 2012, with unemployment forecast to rise from 7.9 per cent in 2011 to 8.3 per cent in 2012. NIESR’s latest forecast of growth of 1.3 per cent in 2011 is half the rate of growth (of 2.6 per cent) forecast by the OBR in June 2010, before George Osborne’s first Budget. NIESR said: “[T]he public finances will not improve as quickly as the OBR expects. Weaker growth and, in particular, weak consumer spending, in the short term, are behind this. Public-sector borrowing will shrink by only 1 per cent of GDP in 2011-2012. The Chancellor will miss his primary target of balancing the cyclically adjusted current Budget by 2015-2016 by around 1 per cent of GDP. The Chancellor has time to address this and further consolidation should not be introduced now. Indeed, it remains our view that in the short-term fiscal policy is too tight and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.”
Then there was that horrid CIPS/PMI reading for manufacturing, which signalled contraction in the sector for first time in two years in July, as new orders declined at the fastest rate since May 2009. The weaker performance of the sector impacted on the labour market, as manufacturers lowered employment for the first time in 16 months. At 49.1 in July, down from a revised 51.4 in June, the survey posted its weakest reading since June 2009. David Noble at the Chartered Institute of Purchasing and Supply argued: “Alarm bells are ringing or the UK manufacturing sector, which has seen conditions deteriorate rapidly since the start of the year.”
At his Mansion House speech on 15 June 2011, Slasher claimed, “The British economy is recovering. Output is growing . . . Stability has returned. Britain is on the mend.” It doesn’t exactly look that way does it? A couple of months turns out to be a really long time in economics.