The goalposts have already been moved several times because the situation ‘is worse than we thought’, but the latest data from the Institute for Fiscal Studies (IFS), suggests that the government will overshoot its borrowing target by £64bn in the year of 2014-2015.
The IFS says the extra borrowing will happen as a result of a weak economy not producing the lift that is needed to meet the original targets. It says that the government will only avoid overshooting the target if it imposes tax rises and more cuts in public spending.
Notably, that will be the final year of the parliament, and one in which a fierce battle is being fought by all parties to ensure that we are not landed with another hung parliament and the prospect of five more years of coalition.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) has predicted that the UK economy may need more stimulus from the Bank of England if it is to avoid slipping any further.
The Bank of England has so far funnelled £375bn into the country’s financial system, which in effect creates new money so that government bonds can be bought. But the OECD said, according to its latest survey: ‘Overall, in the current economic situation, further expansion of the asset purchase programme would be warranted if the economy stays weak.’
It added that cutting interest rates – which are already at an historic low – would help to bolster the economy a little. Still, we’re not sure Mervyn King will spend his final months in office listening to the OECD – it is a French organisation, after all…