Political point scoring over economics

Political point scoring over economics

In between political point scoring, chancellor George Osborne took the opportunity to highlight the relative strength of the UK economy, and the risks of handing control back to Labour.

The economy is sure to be a key battleground in May’s election, and there is plenty of evidence to suggest it is on the right track.

Figures released today show the employment rate (73.3 per cent) is now the highest since records began.

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There are now 30.94m people in work, an increase of 617,000 over the last 12 months, while the jobless total is 1.86m, the lowest since mid-2008 and almost half a million down on a year ago.

Earnings growth slowed slightly last month, but real wages are still growing strongly, helped by record low inflation.

Growth and borrowing projections

At 2.6 per cent, GDP growth in 2014 was strong compared to developed-world peers – as George Osborne pointed out, this is the fastest growth in the G7 (though the IMF forecast that we will be overtaken by the US this year).

Mr Osborne revealed today that the Office for Budget Responsibility has upgraded its projections for economic growth, and reduced its forecast for the budget deficit.

The OBR now projects GDP growth of 2.5 per cent this year (up from 2.4 per cent forecast in the Autumn statement) and 2.3 per cent next year (up from 2.2 per cent).

The chancellor was also keen to point out that the national debt is now falling as a share of GDP, one of his original targets at the start of this parliament.

However, cutting the deficit has proved far more difficult than originally expected.

The coalition once aimed to reduce the deficit to £40bn by 2015, but the latest figure is almost £100bn.

Measures announced today

Lower inflation and higher employment means less welfare spending, and lower inflation means significantly lower debt servicing costs.

However, George Osborne today (18 March) confirmed this extra money would go to reducing debt rather than pre-election giveaways.

However, it appears spending cuts in the next parliament under a Conservative government will be less severe than previously thought, and certainly significantly less than the £70bn predicted by shadow chancellor Ed Balls in a recent speech.

Spending is set to fall to year 2000 levels by 2019, countering Labour’s claim that Mr Osborne would cut spending to 1930s levels.

The biggest change in plans comes at the end of the next parliament, with a £7bn surplus forecast 2019 to 2020, as against the £23bn previously forecast.

This represents a significant loosening in the government’s purse strings at the end of the period.

Ben Brettell, senior economist at Hargreaves Lansdown