MPs warn of ‘significant risks' to GDP if OBR forecasts fall flat

The UK's overall GDP growth forecast is at "significant risk" if business investment is not as robust as the Office of Budget Responsibility (OBR) predicts, ministers warn.

The Treasury Select Committee has today returned a cautious note in its report on George Osborne's first Budget as Chancellor.

The group of MPs have focused in particular on the OBR figures on business investment, and the Chancellor's heavy reliance on them to underpin his forecast for "re-balancing" the economy.

Their report states: "Business investment is expected to make a significant contribution to GDP growth.

"There is a significant risk to the overall GDP growth forecast if business investment is not as robust as predicted."

In 2012, the OBR forecasts business fixed investment will grow by 10% on a year earlier, rising to 10.9% in 2013.

But citing Professor David Blanchflower, a former external member of the Monetary Policy Committee (MPC), the report states: "It is unclear whether firms will increase investment, but for the Government's Budget to succeed, it is vital that they do."

Elsewhere, the report points to other areas where the newly created OBR clashes with industry experts over its optimistic view of growth figures.

Between 2010-11 and 2014-15, the OBR's June Budget forecasts overall employment will rise by around 1.08 million. In the same period, it forecasts general Government employment will fall by around 0.49 million.

As such, the OBR expects growth in employment outside general Government of around 1.57 million.

However, in his evidence to the Committee, economist at BNP Paribas Alan Clarke questioned the hiring capacity of the private sector to accommodate such a swing.

"In what sectors will the jobs be coming? I do not think there is going to be as much hiring as the OBR assumes because I do not think we will be growing in excess of the economy's trend growth. When that is the case, you tend to have job losses."

The Committee also raised concerns the poorest fare "slightly less well" than middle income groups as a result of Budget measures as a percentage of net income.

Chancellor George Osborne last week announced the Treasury Select Committee will have the power to veto the appointment of the new OBR chairman, after its interim chairman Sir Alan Budd quit.