More austerity needed eventually but not until recovery is secure - says John Hawksworth

November 30, 2012

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The public finances aren't looking quite as bad as they did a few months ago, but weaker than expected tax revenues are still likely to lead to a public borrowing overshoot of around £10 billion this year. So the Chancellor will have very little money to play with in his Autumn Statement on 5 December, but I think his short-term focus should be on boosting infrastructure investment in areas such as road maintenance that can come on stream quickly to support the struggling construction sector.

Looking further ahead, our more cautious assumptions on trend growth mean that borrowing remains higher for longer in our projections: still almost £60 billion in 2016/17 as compared to an OBR projection in March of just over £20 billion. So more tax rises or cuts in recurrent spending may be needed eventually to hit the Chancellor's fiscal targets, but this should be delayed until after the economic recovery is secure.

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John Hawksworth
Chief Economist