1.27 Table 1.1 provides a summary of the OBR's central economic forecast. Annex C reproduces key tables from the OBR's economic and fiscal forecast. Further information is provided in the OBR's November 2011 Economic and fiscal outlook, published alongside the Autumn Statement. Like other recent external forecasts, their assessment is conditioned on the assumption that the euro area crisis does not escalate further and is eventually resolved, allowing a gradual improvement in credit conditions.
1.28 The OBR forecast a gradual recovery reflecting the impacts of higher inflation, difficulties in the euro area, and the medium-term impact of the financial crisis on trend output. The economy is forecast to grow by 0.9 per cent in 2011 and 0.7 per cent in 2012, significantly below the Budget 2011 forecast. The OBR forecast subdued growth in the first half of 2012 but a stronger performance in the second half. Growth is forecast to return to above trend rates from 2013, supported by growth in business investment and net trade.
Table 1.1: Summary of OBR's central economic forecast1
|
|
| Percentage points, unless otherwise stated | |||||
| Pre crisis decade average contribution2 |
| Forecast | |||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
GDP growth, per cent Main contributions | 3.2 | 1.8 | 0.9 | 0.7 | 2.1 | 2.7 | 3.0 | 3.0 |
Private consumption | 2.3 | 0.7 | -0.7 | 0.1 | 0.7 | 1.4 | 1.7 | 1.8 |
Business investment | 0.4 | 0.1 | -0.1 | 0.6 | 0.8 | 0.9 | 1.3 | 1.4 |
Dwellings investment3 | 0.3 | 0.3 | -0.1 | 0.1 | 0.4 | 0.5 | 0.4 | 0.4 |
Government4 | 0.7 | 0.4 | 0.3 | -0.3 | -0.5 | -0.5 | -0.7 | -0.7 |
Change in inventories | 0.0 | 1.3 | 0.0 | -0.3 | 0.0 | 0.1 | 0.0 | 0.0 |
Net trade | -0.5 | -0.8 | 1.2 | 0.3 | 0.6 | 0.3 | 0.2 | 0.1 |
CPI inflation (Q4) |
| 3.4 | 4.6 | 2.4 | 2.0 | 2.0 | 2.0 | 2.0 |
1 All figures in this table are rounded to the nearest decimal place. This is not intended to convey a degree of unwarranted accuracy. Components may not sum to total due to rounding, omission of transfer costs of land and existing buildings, and the statistical discrepancy. 2 The average contribution to real GDP growth between 1997 and 2007. In 2006, private consumption accounted for 64 per cent of GDP, business investment for 9 per cent, dwellings investment for 6 per cent, Government for 24 per cent and change in inventories for less than 1 per cent. 3 The sum of public corporations and private sector investment in new dwellings and improvement to dwellings. 4 The sum of government consumption and general government investment. Source: Office for Budget Responsibility and Office for National Statistics. | ||||||||
1.29 There is a high degree of uncertainty over developments in the euro area, which could have a significant impact on the outlook for UK growth. The OBR highlight that a disorderly outcome to the euro area crisis poses a significant downside risk to their central forecast. The OBR set out the channels by which an intensification of the euro area crisis could affect the economy:9
• weaker net trade as a result of reduced euro area demand;
• elevated bank funding costs leading to tighter credit conditions that bear down on activity for longer and lead to a slower recovery in the housing market;
• financial system impairment through a disorderly sovereign default resulting in further negative feedback to credit, trade, the fiscal position and world output; and
• the fiscal position would also be impacted through movements in gilt yields, tax receipts and the operation of the automatic stabilisers.
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9 Economic and fiscal outlook, OBR, November 2011.