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Tuesday, March 29, 2011

OBR forecast Warning on oil price threat to UK

OBR forecast - Warning on oil price threat to UK ; Further sharp rises in oil prices pose the biggest risk to the economy and would leave the UK in the “worst of all worlds” with high inflation and low growth, a member of the independent Office for Budget Responsibility has warned.

“I think the biggest risk to this forecast and in some senses the biggest risk to the economy is if oil prices and food prices ... keep rising faster than the average rate of inflation,” said Steve Nickell, who is part of the team of experts that produces the OBR’s fiscal and economic forecasts for the government. Mr Nickell was speaking alongside OBR chief Robert Chote at Tuesday’s Commons Treasury committee session on the Budget.

The OBR forecast that inflation would sit between 4 and 5 per cent this year and help push down growth this year and next in its economic and fiscal outlook published to coincide with the Budget last week.

Assuming that wages fail to keep pace with inflation, real wages would fall, consumption would decline and growth would be weak. “That in some senses is the worst of all possible worlds because you have higher inflation and lower growth as a consequence of this, which means the difficulties facing the MPC [monetary policy committee] are of a very high order,” Mr Nickell said.

“Then the Bank of England’s MPC is in a very tricky position because the inflation forecast is higher and it’s not a position I would like to be in.”

The OBR also said that there was not enough evidence that the government’s “Plan for Growth” would do anything to boost the long-term growth rate of the economy. But it said that making planning laws for residential and commercial building less onerous could help.

Dave Ramsden, chief economic adviser at the Treasury, refused to pin a number on what the “Plan for Growth” could do to boost long-term growth, but said it provided an “upside risk” to the growth forecasts.

“I think that the binding constraint over the last two decades has been planning constraints,” Prof Nickell said.

“If that can be eased, that’s the best prospect for housebuilding and therefore the construction sector and in the long term, that would be the best prospect for first-time buyers, because there will be more houses and a better chance of moving into them.”source www.ft.com... For the latest updates PRESS CTR + D or visit Stock Market news Today

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