Sunak’s budget forecasts are a work of fantasy

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Published by Anonymous (not verified) on Thu, 24/03/2022 - 2:07am in

Because of media commitments I am going to have few comments to make here this afternoon, but this one relates to an issue that only the more technically minded who read this blog might get, so I have time to make it.

After every budget statement I look at the chart of the sectoral balances issued by the Office for Budget Responsibility. The sectoral balances have to balance to zero between the four main sectors in the economy, which are business, the public, the government and the overseas sector.  In effect, they simply show who is borrowing and who is lending in aggregate, and to whom.

This is the chart from the latest version, issued today:

In effect, the government presumes that in the face of a massive cost of living crisis that is going to crush demand business is going to borrow heavily to invest. That is simply not going to happen.

At the same time it assumes that households faced by a cost of living crisis that is going to break household budgets are going to repay debt, and quite heavily, fails soon. There is precisely no chance of that happening when households are instead going to be crushed by new debt.

Interestingly, there is a frank recognition that foreign lending to the UK is going to fall, as I predicted recently. The oligarchs are leaving. This is the one bit of this chart I believe.

And based on this Sunak claims he will, in effect, balance his current budget and only borrow for investment. Politely, that is pure nonsense in the circumstances.

You only have to look at this one chart to know how badly Sunak has miscalculated. The forecast is staggeringly wrong.