The folly of hoping for the fiscal best

Never before in peacetime has a chancellor of the exchequer watched so deep a fiscal hole open so swiftly before him: annual net UK public borrowing is expected to reach £175bn, or 12 per cent of national income, over the next two years. As he announces his forecasts in his Budget on Wednesday, Alistair Darling will display customary sang-froid. Is that all he must do? The answer is: absolutely not.

This week’s forecasts will be far above the 8 per cent of gross domestic product borrowing in 2009-10 and 6.8 per cent in 2010-11 forecast in the November 2008 pre-Budget report. The Treasury was then suggesting that the economy would shrink by a mere ¾–1¼ per cent in 2009, followed by growth of 1½–2 per cent in 2010. Now, the average of independent forecasts is for a decline in GDP of 3.4 per cent this year, followed by growth of 0.3 per cent in 2010.