The economic recovery has been stronger than anticipated, according to the Office for Budget Responsibility (OBR).
The OBR revised its growth forecast for 2010 from 1.2% to 1.8% after “greater than expected” growth in the second and third quarters.
The Economic and Fiscal Outlook paper says: “Our central forecast is that the economy will continue to recover from the recession, but at a slower pace than in the 1970s, 1980s and 1990s.”
The report puts the growth down “unsustainably strong” growth in the construction sector and firms rebuilding stocks more quickly than it appeared they would at the time of the last report in June.
It predicts weaker near-term growth with quarter-on-quarter growth reaching its slowest at 0.3% in the first quarter of next year as the VAT rise kicks in.
The report cut expected GDP growth for 2011 from 2.3% to 2.1%, and for 2012 down from 2.8% to 2.6%. (article continues below)
It adds: “The relatively sluggish medium-term outlook reflects the gradual normalisation of credit conditions, efforts to reduce private sector indebtedness and the impact of the government’s fiscal consolidation.”
The OBR also revised its prediction for the number of public sector workers losing their jobs in the next five years from 490,000 down to 330,000.
The report says this is because the government decided in the spending review to reduce its planned cuts in public services spending instead announcing additional cuts in welfare spending.
However, it says government plans to freeze real total public spending in 2015-16 is expected to hit another 80,000 jobs.