UK OBR too cautious on borrowing decline
Simon Ward
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The transfer of responsibilities to the Office for Budget Responsibility (OBR) is unlikely to result in an improvement in fiscal forecasting, which is notoriously difficult.
The OBR this week projected a fall in public sector net borrowing excluding the temporary effects of financial interventions (PSNB ex) from £156.1 billion in 2009-10 to £155 billion in 2010-11. Recent trends suggest a significantly smaller deficit. May public finances numbers released today revised down the 2009-10 outturn to £154.7 billion. More importantly, monthly borrowing including intervention effects, after attempting to adjust for seasonal factors, has been running at about £10 billion recently, or £120 billion annualised – see chart. Assuming no further change, this is consistent with the PSNB ex measure falling to £126 billion in 2010-11, based on the Treasury's March forecast that intervention effects would reduce headline borrowing by £6 billion this year. (PSNB ex figures are currently available only quarterly but will be published on a monthly basis from July.)
The OBR's caution in extrapolating recent better trends is helpful for the Chancellor as he seeks to justify further significant tightening in next week's Budget.
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