A government-appointed independent economic body gave Britain’s Conservative-led coalition a boost Monday, raising its forecast for the U.K.‘s domestic economic growth this year and slashing its projection for public job cuts over the next four years.
The Office for Budget Responsibility, however, has lowered its outlook for gross domestic product growth in 2011 and 2012, saying Britain’s economic recovery remains “inherently uncertain.”
But much of the focus was on the positive elements in the report, including a finding that the government’s probability of achieving its tough deficit-cutting goals had increased since January.
The fiscal watchdog said it now expected gross domestic product growth this year of 1.8 percent — up from the 1.2 percent it forecast in June.
It cut its expectation for public job cuts — part of the government’s plan to cut the huge budget deficit — over the next four years to 330,000 from 490,000. It also said the government has a “better than 50 percent” chance of meeting its mandate to reduce the structural deficit — the gap between government spending and taxes — by 2015-16.
The agency lowered its expectation for GDP growth next year to 2.1 percent from 2.3 percent and for 2012 to 2.6 percent from 2.8 percent in Monday’s outlook.
Asked if the forecasts put an end to fears of a double-dip recession, agency chairman Robert Chote said: “It’s not impossible, but its not our central expectation for a double-dip to happen.”
“Even if it did, it would not derail the recovery of the economy over the medium term,” he added.
Some economists argue that forecasts from the agency — created by the new coalition government in May to make an independent assessment of the public finances — are too optimistic.
Earlier this month, the Organization for Economic Cooperation and Development slashed its growth forecast for Britain for next year to 1.7 percent from a previous estimate of 2.5 percent.
Alan Johnson of the opposition Labour party said the forecast for a weak recovery “reminds us all of the risks this government has chosen to take with the economy.”
Len McCluskey, head of the leading Unite union, questioned the independence of the forecasts.
“The reality in the workplaces of the U.K. is of job losses, financial cutbacks and belt tightening by our members in the face of the current harsh economic climate,” he said. “Yet, the OBR is upgrading its growth forecast for 2010.”
“We seem to be living in two parallel economic universes — the optimistic one being peddled by the coalition’s creation,” he added.
Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club economic consultancy, said the balance of growth “appears realistic, with an increasing reliance on exports and business investment and less of a reliance on the consumer.”
Projections for public borrowing were similar to the agency’s June forecast, as it slightly lowered its estimate in the current 2010-11 financial year to 148.5 billion pounds from 149.5 billion pounds.
As growth slows in the near-term, the OBR expects total U.K. unemployment to rise to a peak of just over 8 percent in 2011 — in line with previous forecasts. The watchdog then expects unemployment to fall to just over 6 percent by 2015.
The OBR also expects inflation to be higher than the Bank of England’s 2 percent target in 2010 and 2011, but to fall below that by 2012 as the effects of a rise in sales tax next year fade away.
