Often Overlooked

Ana Nicolaci da Costa writes:

Only a minority of British-based academic economists back Chancellor George Osborne's goal of reaching a budget surplus within the next four years, a survey showed on Friday. 

Britain's Centre for Macroeconomics -- a research institute headed by 2010 Nobel Prize-winner Christopher Pissarides -- said its monthly poll of a panel of experts found that 42 percent opposed Osborne's surplus goal, while 31 percent backed it. 

Reducing Britain's large budget deficit, which exceeded 10 percent of gross domestic product when he took office in 2010, has been a central policy goal for Osborne, seen as a leading contender to succeed Prime Minister David Cameron. 

In the run-up to the 2015 election, which his Conservative party unexpectedly won outright, he made a legal commitment to run a budget surplus unless growth slows sharply. 

Osborne says this is needed to ensure the government has room for manoeuvre if another economic crisis hits, but many of the 26 economists from the panel who took part in the survey disagreed. 

"The fiscal consolidation path is too brisk and could hamper a healthy recovery," London School of Economics professor Silvana Tenreyro said. 

The Centre for Macroeconomics, which says economists' views are often overlooked in public debates, runs monthly polls of a panel of more than 50, almost all of whom are professors with a focus on macroeconomics at British universities. 

Critics say Osborne's plans could be counterproductive and stifle the recovery at a time when the economy is slowing slightly and is braced for higher interest rates in the next couple of years. 

"Such a sharp fiscal consolidation while interest rates remain so low is also risky: if the UK is hit by an unexpected negative shock, monetary policy has little scope to counteract the shock," said Oxford University's Simon Wren-Lewis, who also advises Labour leader Jeremy Corbyn. 

But others are more supportive of Osborne's position.

LSE professor Wouter Den Haan said Britain's economy was doing well and the government should make budget savings now in case risks such as an exit from the European Union or an intensification of Europe's refugee crisis materialise. 

Britain's economy is expected to grow faster than most advanced economies this year, but it has lost some momentum as a slowdown in the global economy hurts demand for British exports and weighs on manufacturing.

Although financial markets do not see an interest rate hike in Britain until late 2016 at the earliest, most economists in a Reuters poll expect the first British rate hike since 2007 to come in the second quarter of next year.