Publications
Partners
London - The British government announced sharply lower economic growth forecasts on Tuesday and warned that a recession in the eurozone could send the British economy into reverse.
The economy was forecast to grow by only 0.7% next year, against a March budget forecast of 2.5% finance minister George Osborne said, presenting figures from the independent Office for Budget Responsibility (OBR).
Growth was expected to recover to 2.1% in 2013 but Osborne told parliament the reality could be much worse if the eurozone debt crisis was not solved.
“If the rest of Europe heads into recession it may prove hard to avoid one here in the UK,” he told parliament.
“Much of Europe appears to be heading into recession caused by a chronic lack of confidence in the ability of countries to deal with their debts. We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth,” he said.
The prospect of years of fiscal austerity will fuel anger among unions on the eve of a one-day strike by 2 million public sector workers over government spending cuts that will make them pay more and work longer for their pensions.
Borrowing will fall much less than expected because of slower economic growth, erasing any room for error in the coalition government’s deficit reduction plan.
Osborne said the independent Office for Budget Responsibility forecasts showed borrowing would fall to £79bn ($123bn) in 2014/15, against a March budget forecast of £46bn.
For next year, public sector net borrowing is now forecast to total £120bn, up from the March prediction of £10bn. The structural deficit would be erased by 2016/17, Osborne said.
Recession risk
The new figures bring the government broadly into line with independent forecasters.
The Organisation for Economic Cooperation and Development rich nations’ economic think tank said on Monday that Britain will slip back into a modest recession early next year. It lowered its 2012 growth forecast to just 0.5% and urged the Bank of England to expand its money-printing programme.
Despite fears that the country is being pushed back into recession the government will not fundamentally change tack, with no additional borrowing or savings announced.
Britain has enjoyed record low borrowing costs thanks to its perceived status as a safe haven from the eurozone debt crisis, which helps alleviate the pressure on public finances.
The yield on ten-year gilts has been trading at 2.3%, well below the 3.8% average rate projected by the OBR in March, resulting in a total debt interest saving of £22bn up to 2015/16, Osborne said.
What stimulus there is, is likely to come from monetary policy.
The Bank of England will pump an additional £75bn into the economy in coming months, a Reuters poll indicated on Tuesday, taking the total to £350bn as it tries to revitalise growth.
“The UK is partway through a ’lost decade’, and I expect that 2012 will be another difficult year,” said Michael Saunders at Citi, who expects the total BoE spend to be at least £500bn - the highest forecast in the poll.
Recognising that he has little scope to alter Britain’s short-term economic prospects, Osborne focused on measures that will boost growth in the longer term, such as promoting lending to small businesses and encouraging private sector investment in infrastructure.
He plans to tap British pension funds to provide the bulk of up to £30bn of investment in building projects, while the government will underwrite £20bn of loans to smaller companies struggling for credit.
The economy was forecast to grow by only 0.7% next year, against a March budget forecast of 2.5% finance minister George Osborne said, presenting figures from the independent Office for Budget Responsibility (OBR).
Growth was expected to recover to 2.1% in 2013 but Osborne told parliament the reality could be much worse if the eurozone debt crisis was not solved.
“If the rest of Europe heads into recession it may prove hard to avoid one here in the UK,” he told parliament.
“Much of Europe appears to be heading into recession caused by a chronic lack of confidence in the ability of countries to deal with their debts. We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth,” he said.
The prospect of years of fiscal austerity will fuel anger among unions on the eve of a one-day strike by 2 million public sector workers over government spending cuts that will make them pay more and work longer for their pensions.
Borrowing will fall much less than expected because of slower economic growth, erasing any room for error in the coalition government’s deficit reduction plan.
Osborne said the independent Office for Budget Responsibility forecasts showed borrowing would fall to £79bn ($123bn) in 2014/15, against a March budget forecast of £46bn.
For next year, public sector net borrowing is now forecast to total £120bn, up from the March prediction of £10bn. The structural deficit would be erased by 2016/17, Osborne said.
Recession risk
The new figures bring the government broadly into line with independent forecasters.
The Organisation for Economic Cooperation and Development rich nations’ economic think tank said on Monday that Britain will slip back into a modest recession early next year. It lowered its 2012 growth forecast to just 0.5% and urged the Bank of England to expand its money-printing programme.
Despite fears that the country is being pushed back into recession the government will not fundamentally change tack, with no additional borrowing or savings announced.
Britain has enjoyed record low borrowing costs thanks to its perceived status as a safe haven from the eurozone debt crisis, which helps alleviate the pressure on public finances.
The yield on ten-year gilts has been trading at 2.3%, well below the 3.8% average rate projected by the OBR in March, resulting in a total debt interest saving of £22bn up to 2015/16, Osborne said.
What stimulus there is, is likely to come from monetary policy.
The Bank of England will pump an additional £75bn into the economy in coming months, a Reuters poll indicated on Tuesday, taking the total to £350bn as it tries to revitalise growth.
“The UK is partway through a ’lost decade’, and I expect that 2012 will be another difficult year,” said Michael Saunders at Citi, who expects the total BoE spend to be at least £500bn - the highest forecast in the poll.
Recognising that he has little scope to alter Britain’s short-term economic prospects, Osborne focused on measures that will boost growth in the longer term, such as promoting lending to small businesses and encouraging private sector investment in infrastructure.
He plans to tap British pension funds to provide the bulk of up to £30bn of investment in building projects, while the government will underwrite £20bn of loans to smaller companies struggling for credit.
