Who could have predicted?

Contractionary Policy Is Contractionary.

Osborne faces £20bn black hole in UK public finances, says report

Nicholas Watt, The Guardian

Friday 7 March 2014 04.26 EST

George Osborne is facing a £20bn black hole in the public finances, which means austerity may have to continue until 2020, according to research by the Financial Times.

In a blow to the chancellor, who hopes to run a budget surplus in the next parliament, the research suggests austerity may have to last a year longer than expected because the government will not be able to rely on economic recovery to eliminate part of the deficit.

Osborne is already committed to imposing £25bn in spending reductions between 2016-17 and 2017-18, which would have to include £12bn in welfare cuts.

The FT analysis of models by the Office for Budget Responsibility suggests Osborne will have to go even further. The chancellor, who will deliver the penultimate budget before the general election on 19 March, has said he will rely on spending cuts rather than tax increases to eliminate the remainder of the budget deficit. The FT’s research suggests that even greater cuts will have to be made to welfare, local government and police because other key areas of spending, such as the NHS and schools, are protected.

But don’t worry.  I’m sure those Confidence Fairies will be along any minute now to fart themselves some Unicorns and Rainbows.