Summary of Government Targets

Source: EI Economic Review 2014-15 by Peter Baron

1. CACB The Government’s ‘fiscal mandate’ requires it to balance the cyclically-adjusted current budget (CACB) – the amount the Government has to borrow to finance non- investment spending, adjusted for the state of the economy – five years ahead. In December, we forecast that the CACB would be in surplus by 1.6 per cent of GDP in 2018-19. We now forecast the surplus in 2018-19 to be 1.5 per cent of GDP.
2. PSNB The Government’s supplementary target is for public sector net debt (PSND) to fall as a share of GDP in 2015-16. We now expect PSND to peak at 78.7 per cent of GDP in 2015-16, to fall by a small margin in 2016-17 and then to fall more rapidly to 74.2 per cent of GDP by 2018-19. Debt as a share of GDP is lower in each year of our forecast than in December, reflecting lower borrowing and upward revisions to our nominal GDP forecast.
3. CPI The Government, via the Monetary Policy Committee, has a set a target of 2% inflation. If the target is missed, as it was in December 2014, then the Governor of the Bank of England writes a letter to the Chancellor explaining the missed target. Inflation was 1.5% below target in 2014.

4. Unemployment The Government has a target of 7% unemployment. The March 2014 forecast of 6.8% proved inaccurate as, again, unemployment fell further and more quickly than expected to 5.5%. Unemployment is an approximate measure of the state of demand.

UK economic outcomes and forecasts 2013-2019