Schroders: New UK growth forecasts 'optimistic'

The UK annual growth forecasts announced at today's budget are 'optimistic' according to Schroder economic strategist Azad Zangana.  

The chancellor announced the revised figures from the newly created Office for Budget Responsibility (OBR) as 1.2% for the current year compared to the previous figure of 1.3%.

For 2011 it predicted 2.3% annual growth compared to the former 2.6%, while further out the chancellor announced growth forecasts of 2.8% for 2012, 2.9% for 2013 and 2.7% for both 2014 and 2015.

But Zangana told Citywire: 'We already thought the numbers were a bit optimistic but now with the announced changes to the deficit we think they are even more optimistic.'

He said he expected a larger revision downwards than the predicted 0.3% in 2011.

Zangana added that Schroders would now revise its CPI inflation target for 2011 up from 2.5% to 2.8% following the announcement that VAT was to rise to 20% from next January.

Schroders had been anticipating a rise to just 19%.

'It is a one off rise in VAT so we expect inflation to trend down from 2012 onwards.'

Zangana said that while the tax changes announced had been largely as he had expected, there had been bigger than expected potential spending cuts announced today even if most of the detail had been deferred.

The measures announced today revealed that 77% of the total fiscal consolidation would be achieved through spending reductions with the remaining 23% coming through tax increases.

'We would expect to get most of the gory details in October. The tax changes were near what we were expecting but the cuts in spending are bigger than what we expected. They are taking more out of the public sector than we thought.

Zangana also warned that the fiscal targets set out by the chancellor were still tough and would be 'quite difficult to achieve.'