Current British recovery is future growth enjoyed now

British Finance Minister George Osborne last week announced increased forecasts for growth in his autumn mini-budget, but it was simply growth brought forward from a later date, a top economist said Monday. The backdrop to Chancellor of the Exchequer Osborne's fourth autumn statement is growth, said Carl Emmerson, deputy director of the leading economic think-tank the Institute of Fiscal Studies (IFS). Emmerson told Xinhua in an interview that stronger economic growth this year means that GDP is higher than predicted by the Office for Budget Responsibility (OBR) in March and that higher level is going to feed into future figures. The OBR, the independent body set up by the government to handle economic statistics and forecasting, had originally forecast 0.6 percent GDP growth this year in the March budget. This was revised for the autumn statement to 1.4 percent this year, and next year's growth was also revised significantly upwards from 1.8 percent to 2.4 percent. Emmerson said,"In March the OBR was forecasting that there would be plenty of spare capacity for above-trend growth for beyond 2018. Now they say that their estimates for potential output were little changed, revised downwards only very slightly." "Higher growth this year, and the higher level of activity right the way through to 2018-19, means we will have closed that output gap and we will have used all that spare capacity in the economy; there will be no scope for above-trend growth after that," he added. The British economy is still 2.5 percent smaller than it's peak before the 2008 financial crisis. The subsequent recession and anaemic growth in 2010 and flatlining growth in 2011-12 means that the economy has not yet regained ground lost then, though it is now making progress, the expert said. Despite the growing robustness of the economic recovery that has taken hold since January, the change is not so great in terms of underlying figures, said Emmerson. "You see very different growth figures and very different headline deficit figures but the underlying economy and the underlying deficit has not really changed very much and that is what really matters for policy," he said. However, Emmerson suggested that one of the great benefits of this year's growth was the economy was entering a "slightly more stable period with some of the big risks perhaps starting to go away." Emmerson raised the puzzling phenomenon of post-2008-crash productivity in the British economy. Historically, the British economy has responded to recession by quickly laying off workers. This pattern is reversed once recovery is underway, with a sharpening uptake of workers. However, the behavior in this post-recession period has not been like that. Jobs were lost, but not to the extent of previous recessions, and firms have hoarded the capital of their workers, sometimes by the means of shortening their hours and turning them into part-time workers. This has implications for growth forecasts; just how much potential for growth is there in the economy, when will it hit trend growth of about 2-2.5 percent and how long will it maintain above-trend growth as it takes up the slack of lost productivity? Emmerson said finding an answer to these questions had significance in two areas -- what it foretold for household incomes, and for the quality of public services which both rely on how productive the economy could be. "How much workers produce an hour is key to that," said Emmerson. Emmerson said policies unveiled in the autumn statement, such as free school meals and social care will add to budget demands. It is less clear if these will be paid for in the longer term by further cuts to the rest of public services or if the pain would be shared in a different way, such as cutting social security more, or more tax cuts, he added.