Press Room
Grant Thornton's chief economist assesses the UK economy and
public finances ahead of the Pre-Budget Report
Grant Thornton's Chief Economist, Stephen Gifford. says that the
2009 Pre-Budget Report (PBR) is likely to be a neutral budget as
the Chancellor avoids doing anything to stall the nascent
recovery.
"The UK economy has suffered its most severe recession for decades
with a total peak to trough GDP contraction of 5.8% since Q1 2008.
The worst of the recession may be over, but we are still in for a
long hard slog," says Stephen Gifford, Chief Economist at
Grant Thornton. He notes: "Economic growth will be patchy
over the next 6 months and a return to trend growth is unlikely
until the second half of 2010. I would expect annual GDP growth to
be just 1.0% for 2010".
"The Chancellor still lacks the statistical ammunition to declare
that the biggest financial crisis since the 1930s is well and truly
over. With GDP falling by 0.3% in Q3 2009, he will not be able to
provide too much good news at Wednesday's PBR and is unlikely to
announce any significant measures to reduce the unprecedented rise
in public debt".
"The Chancellor will have to admit that he got it wrong on the
speed of the recovery and cut his economic forecast from a 3.5%
fall in GDP to somewhere closer to a 4.5% reduction for 2009.
Whilst this is to be expected, we are unlikely to see action or
even a plan of action on borrowing and debt levels".
"Borrowing of close to £190 billion now looks inevitable for
2009/10, the equivalent of 14% of GDP and there is the added risk
that a double dip recession will have a further impact on the
already catastrophic borrowing levels if that were to
happen".
"It is unlikely that the Chancellor will outline any significant
changes in tax levels or spending this side of the election. Any
big tax rises and spending cuts now will harm the economy, but we
do need a clear plan to tackle the elevated debt and borrowing
levels, even if the spending cuts occur next year".
"Reducing the debt burden will almost certainly involve a
significant rise in taxes as well as reductions in public spending.
If we assume no taxes rises are announced, our modelling suggests
that spending on public services would have to be cut by 2-3% per
annum for the next 3 to 4 years to return the current budget
balance back to more manageable levels. Therefore, some tax rises
are highly likely as such cuts will be unpalatable".
"Any tax rises will need careful thought. In an economy that relies
to a high degree on internationally mobile capital and labour,
higher taxation is a threat to the UK's competitive position in the
medium term".
For further information please contact
Suvra Datta, Grant Thornton Press Office, 0207 728 2375 or via
email on suvra.datta@gtuk.com