Tonight:
5°c
Economists question Darling's optimism
Hugo Duncan, Nick Goodway and Gideon Spanier25 Nov 2008
LEADING economists today questioned Alistair Darling's optimism about when Britain will begin to recover from the recession.
They said his belief that growth will come back strongly in 2010 was not widely shared - and some also said they feared his borrowing figures may themselves be optimistic.
The Chancellor used the pre-Budget report to predict that the economy would shrink by 0.75 to 1.25 per cent next year but recover strongly to grow between 1.5 and two per cent in 2010.
And he predicted government borrowing would reach a peak of £512billion in 2013, meaning total borrowing of £1,000billion - £1trillion - over the next five years.
But those predictions were questioned by a string of economists. Here is what they said:
Cormac Marum, tax director at Grant Thornton accountants: "The Chancellor's forecasts on growth are more optimistic than the rest of the market thinks they should be. He is definitely hoping there is going to be a quick rebound. I think that is optimistic. On borrowing, a few years ago such numbers would be unimaginable but we are in uncharted territory here."
Jonathan Loynes, Capital Economics: "The Chancellor's figures on growth and borrowing for the next year or two are reasonable but they are optimistic beyond that. He is predicting a strong recovery from 2010 onwards but we think it could drag on much longer."
Andrew Smith, chief economist, KPMG: "If we do indeed get away with a mild recession that the Chancellor is forecasting then his borrowing figures are reasonably OK. But the question is, are we really going to see just a few more quarters of negative growth when we are experiencing the worst financial crisis for nearly 70 years? Highly paid financiers will always look at ways of paying as little tax as possible."
David Kern, chief economist at the British Chambers of Commerce: "We believe his forecasts are still too optimistic. Growth next year is likely to be worse than predicted and it is doubtful that positive quarterly GDP growth would start as early as mid-2009. There is a real risk that even the huge deficit figures announced today are still not sufficiently high."
Roger Bootle, economic adviser to Deloitte: "Although the borrowing numbers reach 8 per cent of GDP, roughly equal to what they reached in the mid-Seventies and early Nineties recessions, this is predicated on the assumption that by 2010 the economy is recovering again. We suspect that it will still be contracting The key to the economic environment is going to be the behaviour of the banks. The Chancellor may well have to take more effective control of them to ensure that they carry on lending."
Charles McDowell, of Charles McDowell Property Consultants, specialising in high-end real estate in London: "The Chancellor's attack on higher earning individuals is yet another body blow to an already beleaguered target. Many more of these people may now decide that London is an inhospitable place in which to do business and relocate."
Chris Sanger, head of tax policy at Ernst & Young: "The abandonment of aviation duty in favour of reforms to the existing air passenger duty still leaves the industry facing a hike in taxation. Passengers may choose nearby airports in Europe over Heathrow in order to save up to £146 per ticket by 2010/11."
David Morley, senior partner at Allen & Overy: "The financial crisis now has the real economy in its grips. It will need huge, concerted and determined action to turn that around. I cannot see 2.5 per cent off VAT making much difference, even for the average consumer, but will still saddle us with a massive bill."
Sir Martin Sorrell, chairman of communications group WPP: "It's a move in the right direction, but the question is whether it will be enough. The noises coming out of the US is they will do more in terms of fiscal stimulation once the new president comes, around three or four per cent when ours is around one per cent."
