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!