Rebalancing doesn't look any easier

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EEF's Chief Economist Lee Hopley blogs on the Chancellor's Budget Speech. A longer version of this blog is available on the LSE website

The Chancellor's speech got off to a promising start with a commitment to build a new economic model by backing businesses.

While delivering a pro-growth Budget was going to be a difficult trick to pull off when there isn't any spare cash, the rebalancing of the economy still looks a long way off.

As was widely-trailed the Budget delivered internationally competitive corporate tax rate and the Chancellor reiterated the commitment to move the R&D tax credit above the line.

That's all good news for some companies, but further down the supply chain the signal to getting hiring and expanding was considerably less clear.

Manufacturers' strong investment intentions have yet to translate into increased capital expenditure. It is unclear whether this Budget will do anything to get companies to make that commitment, in the UK, and now.

The Office for Budget Responsibility would seem to agree. They have downgraded their forecasts for business investment growth in 2012 from 7.7% to 0.7% between November and this budget.

Although this will be offset by an increase in household spending – meaning the UK avoids a technical recession beyond that it seems that the Chancellor's new economic model may be built on unstable foundations. Productive capacity will continue to be eroded if companies postpone investments. This bodes ill for our ability to compete in growing world markets, or deliver the Chancellor's ambition of £1 trillion of export sales by 2020.

Manufacturers wanted a clear sense of what the government's growth priorities are, and measures to make them a reality. The Chancellor kicked off with some good ideas, but rebalancing the economy looks as challenging now as it did this morning.

A Minimal Contribution to growth from Business Investment in 2012 and 2013

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Chief Economist

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