Osborne says vindicated by growth rebound, vows to stay on course

Britain's Chancellor of the Exchequer George Osborne speaks at a Thomson Reuters Newsmaker event at Canary Wharf in London

View photo

Britain's Chancellor of the Exchequer George Osborne speaks at a Thomson Reuters Newsmaker event at Canary Wharf in London October 22, 2013. REUTERS/Toby Melville

By David Milliken and William Schomberg

LONDON (Reuters) - Chancellor George Osborne celebrated a sharp turnaround in Britain's economy as vindication of his austerity push on Thursday, but said he would not relax his grip on public spending in the years ahead.

Osborne used a big jump in forecasts for growth in 2013 and 2014 to taunt the opposition Labour party ahead of a general election in 17 months' time.

"We have held our nerve while those - who predicted there would be no growth until we turned the spending taps back on - have been proved comprehensively wrong," he told parliament as he gave a half-yearly update on the government's economic plans.

As recently as April, Osborne was under heavy criticism from Labour for not doing more to spur a flat-lining economy. The International Monetary Fund also urged him to speed up spending.

But a sudden pickup in growth has made Britain one of the fastest-growing advanced economies - the euro zone is set to grow at less than half the rate of Britain next year, according to European Central Bank projections released on Thursday.

It also means the government's goal of fixing the public finances is no longer slipping further out of reach and Osborne announced the first big fall in projected public borrowing since the coalition took power in 2010.

Labour is now campaigning on what it calls a cost of living crisis, saying low wage growth and surging fuel and transport bills have left many Britons worse off, something Osborne tried to deflect with a freeze on fuel duty and other measures.

Borrowing - excluding the effect of cash transfers from Royal Mail and the Bank of England - was revised down to 6.8 percent of gross domestic product in the current fiscal year, from March's estimate of 7.5 percent.

The deficit, by that measure, would be wiped out by the 2018/19 fiscal year.

But, based on another measure of Britain's over-spending which Osborne originally used as a target for his austerity programme, the deficit was due to take a year longer than previously forecast to return to surplus.

Looking further ahead, Osborne said he would send to parliament next year a fiscal charter to bind future governments to bring down public debt, something that could pressure Labour to back the policy or risk accusations of irresponsibility.


Osborne said forecasts from Britain's budget watchdog, the Office for Budget Responsibility (OBR), showed economic growth in 2013 was expected to be 1.4 percent, rising to 2.4 percent in 2014.

That represented a big upgrade from the OBR's predictions in March of growth of 0.6 percent and 1.8 percent respectively.

However, the economy remains smaller than before the financial crisis and Osborne stressed that Britain faced more spending cuts in the years ahead to rebalance its public finances and restore the economy to health.

"Britain's economic plan is working. But the job is not done," he said, noting the structural budget deficit - which is not helped by a pickup in the economy - was not expected to fall any faster than previously forecast.

The updated economic forecasts were mostly in line with economists' expectations. Capital Economics said they were cautious and if growth was stronger, Osborne might be able to announce some modest tax cuts before the next election.

Alan Clarke at Scotiabank said an earlier and lower peak in the national debt than previously forecast could see Britain regain triple-A credit ratings. Standard & Poor's is the only one of the three main agencies to still have Britain on the top rating after Moody's and Fitch took the UK down a notch this year.

Moody's, however, said later on Thursday that Britain's "ongoing fiscal challenges" meant it was not thinking about upgrading the rating any time soon.

The economic rebound and government measures to promote property purchases have helped push up property prices. In a reflection of concerns about a price bubble in London's property market, Osborne announced the introduction of capital gains tax for foreigners who own a British property which is not their primary residence.

Labour, which is ahead in the polls, reiterated the party's criticism that while economic data is improving many Britons are not benefiting.

"For all their complacent boasts, after three damaging and wasted years, for most people ... there is still no recovery at all," Ed Balls, Labour's top economics official, told parliament.

"The whole country will have seen today that for all his boasts and utterly breathtaking complacency, the Chancellor (George Osborne) is in complete denial."

The government sought to show voters it can help offset the impact of stubborn inflation which has eaten into their wages for several years.

Osborne said more children would get free school meals and married couples would get tax breaks. Businesses would benefit from a cap on property tax increases and companies hiring people under the age of 21 would no longer have to pay payroll taxes.

(Additional reporting by Christina Fincher, Silvia Antonioli, William James and the UK bureau, editing by Susan Fenton)


View Comments (47)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • The New 2015 Sonata®: A Step Above the Competition

    There's a Sonata® that's perfect for you, and this is your chance to build it! Visit the Hyundai® Official Site to customize your 2015 Sonata® today!

  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Hyundai Elantra: Features & Benefits Come Standard

    More interior space, alloy wheels standard, 145 HP. Explore all the features and benefits of the Elantra at the Hyundai Official Site.

  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

  • $40-Off Limited Time Offer From Norton

    Award-winning PC protection that doesn't slow you down. Easy installation & money-back guarantee. Download today with our $40-off limited time offer.

    AdChoicesNorton by SymantecSponsored
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…

  • Fall means cool savings at Sears.com

    Save big on appliances, apparel, lawn and garden, tools and more. For fun in the sun or a project in the shade, start your search at Sears.

  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…