UK economy steady ‘but eurozone still a threat’

21 Mar 12
The Office for Budget Responsibility has revised its growth forecast for the UK this year up from 0.7% to 0.8%, but the eurozone remains a ‘major risk’ to its prospects, Chancellor George Osborne said today.

By Nick Mann | 21 March 2012

The Office for Budget Responsibility has revised its growth forecast for the UK this year up from 0.7% to 0.8%, but the eurozone remains a ‘major risk’ to its prospects, Chancellor George Osborne said today.

He used his Budget speech to warn that Britain was ‘not immune’ from developments in its largest export markets, which had prompted the OBR to sharply revise down its forecast for eurozone growth this year from 0.8% to –0.3%.

Its forecast for world economic growth had also been revised down over the next years – by 0.2% and 0.3% respectively, he said. High oil prices were also a ‘great concern’.

Despite this, there were ‘more positive signs’, he said.

‘The OBR expect the British economy “to avoid a technical recession with positive growth in the first quarter” of this year.

‘They say that the British economy has “carried a little more momentum into the new year than previously anticipated”.’

The OBR forecasts it will grow by 2% next year, 2.7% in 2014 and 3% in 2015 and 2016.

Osborne said his Budget also reaffirmed the government’s ‘unwavering commitment’ to dealing with Britain’s record debts. The 11% budget deficit faced when the coalition came to power was forecast to reach 7.6% next year, he said, while the share of national income taken by the state will have fallen from almost 48% to 43% over the same period.

He stressed, however, that the Budget would be ‘fiscally neutral’, through a modest reduction in both taxation and spending.

OBR forecasts of the fiscal deficit had improved ‘a little’ from the Autumn Statement forecasts, he said, with borrowing this year expected to come in at £126bn, and not the £127bn previously forecast. This was more than £30bn a year lower than its peak in the year before the coalition came to power, he said, and it would then continue to fall year on year to reach £21bn by 2016/17.

In total, borrowing is down by £11bn compared with the Autumn Statement forecast, money Osborne said would be used to ‘pay down’ debt.

The OBR now expects the government to achieve its fiscal mandate of a cyclically adjusted current balance by 2016/17, Osborne said. It is also on course to reach its target for debt to be falling as a percentage of national income by 2015/16.

‘Public Sector Net Debt is now set to peak at 76.3% in 2014/15, almost 2% lower than previously forecast – before falling the following year,’ he said.

He added: ‘A balanced structural current budget and falling debt: our deficit reduction plan is on course.’

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