U.K. Watchdog May Reduce Job-Loss Forecast, Ernst & Young Says

U.K. Prime Minister David Cameron’s welfare cuts may save 90,000 public-sector jobs by easing the pressure on government departments, according to Ernst & Young LLP’s Item Club.

The Office for Budget Responsibility may announce it expects about 400,000 jobs to be axed by April 2015 instead of the 490,000 it forecast in June, Ernst & Young said in a report.

The figures might provide a boost for Prime Minister David Cameron as the policeman in charge of dealing with a demonstration against cuts tomorrow warns of “a sea of violence and disorder.” The OBR is due to release its forecasts for the economy at 1 p.m. in London today. Chancellor of the Exchequer George Osborne will make a statement to Parliament at 3:30 p.m.

“Buffering government departments will have saved some public-sector jobs, assuming that there will be a similar balance between staffing and procurement costs and a similar rate of wage growth,” Peter Spencer, chief economic adviser to the ITEM Club and a former U.K. Treasury official, said in a statement.

The revisions will reflect the impact of Cameron’s decision in last month’s comprehensive spending review to cut an extra 7 billion pounds ($11 billion) in welfare spending and allocate the savings to departments, Spencer said.

Faster Growth

The OBR, led by Robert Chote, is likely to raise its 2010 economic growth forecast and say the budget deficit will be smaller than forecast in June, although Europe’s sovereign-debt crisis has cast a shadow over the prospects for future years, economists say.

Cameron is facing growing public pressure over his plans to slash the 156 billion-pound deficit, with violence erupting during student demonstrations this month against a proposed increase in university tuition fees. Commander Bob Broadhurst, head of the Metropolitan Police’s Public Order Branch, today issued a statement appealing to those attending another “day of action” planned for tomorrow to “think carefully about the consequences of engaging in violence and disorder.”

Osborne has said he is sticking to his spending cuts and rejected International Monetary Fund calls to scale back the tightening should the U.K. economy slide back into recession.

The OBR was set up by Osborne to oversee Treasury forecasts and judge the government against its goal of achieving structural budget balance in the year ending April 2016, a “fiscal mandate” Osborne says he is on course to meet a year early.

Tax Boost

The OBR may raise its 1.2 percent growth forecast for 2010 after the economy had the fastest expansion for a decade in the second and third quarters, say economists including Spencer. The average of independent forecasts published by the Treasury this month was for growth of 1.7 percent.

With tax revenue outpacing official forecasts, economists expect the deficit to be 6 billion pounds lower than the OBR predicted for the fiscal year through March at 143 billion pounds.

The OBR’s forecast of 2.3 percent growth in 2011 is above the 1.9 percent average of independent forecasts, although the Bank of England this month predicted growth of 2.6 percent.

Osborne will revert to the practice of delivering an “autumn statement” outlining official economic forecasts alongside a brief statement.

Labour introduced the Pre-Budget Report in 1997 to consult on changes for the following year. The occasion became popularly known as a “mini budget” as it took on greater significance during the financial crisis when Gordon Brown used it to introduce emergency measures including cutting value-added tax.

To contact the reporters on this story: Gonzalo Vina in London on gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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