L&G calls out OBR as too optimistic

That swerving analysis comes from James Carrick, economist at Legal & General Investment Management, who says real GDP growth was likely to be half the OBR’s 3% forecast at best.

He said: “The OBR is forecasting a return to pretty punchy growth rates by the end of 2014 however our analysis suggests that while the UK economy will grow through the next few years, the rate will be lucky to be half what the OBR is predicting.”

L&G said it saw two key areas of difference with the OBR forecasts and its own; global growth and housing.

The OBR’s forecast expects housing activity to increase by more than 50% over the next four years.

Carrick said that this implied a return to the days when there was little difference in the interest rates charged on 95% and 75% loan to value mortgages.

The spread between 90% and a 75% LTV loan however is around 90%.

Carrick said: “Our analysis suggests the OBR is expecting the fastest sustained improvement in credit conditions since the deregulation era of the late 1980s. While some improvement in credit conditions is likely, it is unlikely to be this rapid.

“Under these circumstances the government will miss its target of a falling debt-to-GDP ratio in 2015. Either further austerity measures are implemented to close that gap or the timetable changes.

“Rather than implement more austerity in the short term and risk derailing the recovery, the government is likely to let the timetable for reducing debt slip and extend the period of fiscal restraint.”