* Osborne should do more to boost investment -economists
* Respondents split on whether he should relax austerity
By Andy Bruce
LONDON, March 18 (Reuters) – British finance minister George
Osborne should do more to boost investment in Wednesday’s
budget, say economists polled by Reuters, although they were
split on whether he ought to borrow more to revive the economy.
Osborne is struggling to defend an austerity policy that
after three years has delivered almost no growth and slower than
planned progress in cutting Britain’s budget deficit.
He and Prime Minister David Cameron have ruled out any
change of course.
Most of the two dozen market economists polled over the past
week said Osborne should do more in the budget to spur economic
growth. But there was no consensus on whether the government
should borrow more to achieve that.
On whether Osborne should relax his drive for austerity to
help growth, which would imply more borrowing, economists were
split: 13 against and 11 in favour.
A firm majority of 18 out of 23 said he should rejig
existing plans and cut current spending to divert more funds
into capital spending. The other five disagreed.
“It’s not just reducing the deficit that’s Osborne’s job.
It’s getting the economy back onto a sustainable recovery
footing,” said Philip Shaw, chief economist at Investec in
London.
“We would argue messing with the fiscal stance is not the
right way of achieving that. Therefore ‘Plan A’ is in our mind
the correct path,” said Shaw, noting Britain still has one of
the largest budget deficits in the European Union.
He thinks a better approach would provide much more credit
to small- and medium-sized businesses that account for around
half of the UK’s private economy.
Those who think Osborne should relax his austerity push say
the economy’s stagnation over the last few years is proof enough
that a change in tack is needed.
“The weakness of the economy requires some sort of fiscal
loosening, especially at a point where monetary policy doesn’t
seem to be particularly effective,” said Vicky Redwood, chief UK
economist at Capital Economics.
“The Chancellor was right to bring in the austerity plans in
2010 when he did, and that reassured the financial markets that
the UK was committed to reducing the deficit. But I think the
main risk has shifted to whether the economy can start to
recover again.”
Redwood argues a rise in borrowing to fund stimulus could
fully pay for itself in tax revenues from a growing economy.
That view is shared by Britain’s Labour opposition, and
Keynesian economists like Nobel Prize-winner Paul Krugman. The
International Monetary Fund, one of the biggest proponents of
austerity, now says cost-cutting may hurt economic growth more
than it first thought.
A CAPITAL IDEA
There was consensus that Osborne should allow more capital
spending – funding infrastructure projects with long-term
economic benefits – at the expense of current spending, which
covers regular outgoings on everything from public sector
salaries to welfare.
Deputy Prime Minister Nick Clegg, who leads the Liberal
Democrats as the junior partner in the coalition, said in
January the government made a mistake in cutting capital
spending when it came to power.
Most economists expect Britain will narrowly escape its
third recession in four years this quarter, but few see anything
other than anaemic growth well into 2014.
Economists in the latest poll expect the government’s net
borrowing requirement will rise next year, excluding costs of
its bank bailouts and the absorption of pensions from the Royal
Mail, but including transfer of gilt coupons from the Bank of
England’s asset purchases.
They put that figure at a median 105 billion pounds ($159
billion) for the 2013-14 fiscal year, compared with their
estimate of 95 billion pounds for 2012-13.
In December, Osborne targeted public sector net borrowing in
2013-14, excluding financial interventions, at 99.3 billion
pounds.
Even so, Britain will sell fewer government bonds in its
coming fiscal year, as the cash transfers from the Bank of
England and a bigger stock of short-term debt mask higher
borrowing needs, according to a separate Reuters survey of
primary dealers.
Britain’s monthly government borrowing figures through 2012
routinely overshot forecasts, thwarting efforts to cut the
deficit.
($1 = 0.6609 British pounds)
(Editing by Ruth Pitchford)
