Fortnightly insight into the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.
See: www.strategiceconomics.co.uk
The recent UK Budget 2013 will not significantly affect the economy’s path for the foreseeable future. According to the Office of Budget Responsibility (OBR), growth will barely accelerate, inflation and unemployment will stay stubbornly high, and fiscal balances will remain negative. The main question is whether the Budget boosts growth prospects and potential in the long run. Since the OBR lowered its long-term growth potential, the answer is no. Indeed, the budget was stated to be neutral. In other words, if you take all the spending and tax increases and cuts and you net them out, the impact on growth is neither to expand nor to shrink the economy as a whole. (For the details, see the many reports that have analysed the Budget in the last two weeks. See mine at www.strategiceconomics.co.uk)
Here, I want to focus on two main issues for Dorset.
First, the main news for Dorset was the Government’s endorsement of Lord Heseltine’s recommendation for the creation of a Single Local Growth Fund, devolved to the local level through new Local Growth Deals. Funding will probably be allocated to Local Enterprise Partnerships on the basis of strategic multi-year plans for local growth. In developing these plans, Dorset’s LEP and its partners will be challenged to leverage private and local funding and commit to governance reform. The competitive tensions in this approach incentivises LEPs to drive strategic improvement. The Single Local Growth Fund will be operational by April 2015 and further detail will be set out at the 2015-16 Spending Round (see below). The Dorset LEP will need to analyse the evidence and produce a strong Strategic Growth Plan if it is to compete effectively and successfully for a share of this national ‘single pot’.
Second, most of the major economy changes in the budget remain to be revealed. The Comprehensive Spending Review (CSR) – expected by mid-year 2013 – will detail spending over the next three years. Importantly, a lot of the detail about local or regional benefits, as heralded in the Budget and derived from the Heseltine Report will not be known until then. Also, the Active Money Policy announced by the Chancellor suggests the Bank of England (BoE) Monetary Policy Committee’s (MPC) new remit, though still based on the 2% per annum inflation target, will be widened to involve “intermediate threshold” measures. The new BoE Governor will have to report on how the MPC might do this in his first Inflation Report, to be issued in August 2013. Many Dorset residents will face a different trade-off between inflation and growth.
I will comment on these developments as they occur.
Meanwhile, the productivity numbers just released for the final three months of 2012 tell the real story of the persistent downturn. UK output per hour was 2.3% lower than a year earlier and 3.6% lower than the pre-recession peak. The downturn will continue as long as this awfully negative trend is evident. This is an urgent, long-term issue for local bodies hoping to stimulate sustainable growth and create jobs.
Professor Nigel Jump, 1st April 2013