Government is not pulling the strings - fiscal watchdog

The chairman of the new Office for Budget Responsibility Sir Alan Budd attends a press conference at the Treasury, in central London, May 17, 2010.

LONDON (Reuters) - The head of the newly-formed fiscal watchdog fought on Tuesday to prove its independence from political interference, saying he was not coerced into publishing figures to suit the government's timing.

A messy beginning for the Office for Budget Responsibility -- set up to improve the credibility of economic forecasts that feed into government policy -- has embarrassed the new Conservative-Liberal Democrat coalition.

Chancellor George Osborne trumpeted the OBR as a sure-fire way to stop politicians meddling in the art of forecasting and massaging figures to suit their ends.

But the OBR's independence has already been put in doubt because it is housed in a Treasury building, gave sensitive employment estimates to the government before their publication and trimmed job loss projections without explaining why.

Accusations that those actions enabled ministers to put a more positive gloss on spending cuts has raised concerns at a time when many economists say major cuts may endanger recovery.

"There was no conspiracy or pressure on us to change the numbers and no pressure on us to bring forward publication," OBR interim chief and former Treasury official Alan Budd told parliament's Treasury Committee.

The OBR published estimates showing the scale of public sector job losses likely to result from the coalition's severe budget deficit reduction plan an hour before Prime Minister David Cameron took questions in parliament on June 30.

Budd, who has since outlined recommendations to improve the OBR's credibility, said the Treasury had been given the estimates on June 25. That would have given Cameron plenty of time to prepare before his regular grilling in parliament.

"We do have the practice, rather like the ONS, of releasing within the Treasury numbers that are going to be put out by us so that they have prior warning of that," Budd said.

Some commentators have questioned whether the OBR -- one of the coalition's biggest moves since taking power in May -- will ever be regarded as free from political interference following its difficult early life.

Budd is due to step down in the coming weeks, leaving behind the difficult task convincing financial markets and voters that the OBR can be trusted to whoever takes over the reins.

In a further blow to the coalition, Budd and fellow OBR economist Geoffrey Dicks said the June 22 austerity budget had increased the chances that Britain's fragile economic recovery could run out of steam.

"The near term outlook for GDP is not as good as it was before the budget," Dicks said.

(Editing by Lin Noueihed)