LONDON (Reuters) - The government will borrow more rather than less this fiscal year and its multi-year austerity plan will lead to 1.2 million public sector job cuts, a leading policy institute said on Wednesday.
The forecasts, which the Institute for Fiscal Studies said supported the case for the Bank of England to do more to boost the economy, are more pessimistic than those used by Chancellor George Osborne to set policy, with the IFS pencilling in an extra 270,000 job losses by 2018.
If correct they could put Osborne’s deficit-reduction programme, already undermined by a chronically weak economy, even further behind schedule.
IFS programme director Gemma Tetlow said tax revenues were likely to be lower and spending higher in the year ending in April than expected by the Office for Budget Responsibility, the government’s fiscal watchdog.
“Our baseline forecast is therefore that borrowing will be higher in cash terms this year than it was last year,” she said.
Osborne’s plan to eliminate Britain’s structural budget deficit by the next election in 2015 with a tough programme of spending cuts and tax rises is already two years off track as a result of economic weakness.
The IFS predicts borrowing excluding one-off items will rise to 125.4 billion pounds this fiscal year from 121.4 billion in 2011-12 and against the OBR’s forecast of a drop to 120.3 billion.
Extrapolating on the same basis, Britain would end up borrowing 69 billion pounds more in 2014-15 than the watchdog had expected in late 2010, the IFS estimated.
That amounts to a “very much looser” fiscal policy than Osborne intended in 2010, the IFS said in a report prepared ahead of his half-yearly budget statement in March.
The IFS is also gloomier than the OBR on public-sector job losses between 2010, when the Conservative-led coalition came to power, and 2018 when current government cuts are due to end.
The budget office estimates 929,000 jobs will have gone over that period.
The IFS said there was a strong case for the BoE’s Monetary Policy Committee to do more for the economy, given that a significant fiscal stimulus looked unlikely.
“We believe that the (U.S.) Federal Reserve provides a good template to follow,” the institute said.
It noted that the Fed had purchased a much wider range of assets, compared to the BoE’s focus on government bonds, and provided guidance on the likely path of monetary policy.
“By contrast, the MPC has reacted more slowly to stimulate the UK economy,” the institute said.
The BoE is not expected to announce any policy changes after its monthly meeting on Thursday.
Editing by John Stonestreet