UK growth likely to be just 0.6% this year, says Osborne

20 Mar 13
The UK economy is expected to grow by just 0.6% this year as the ‘very challenging’ global situation continues to weigh down its performance, Chancellor George Osborne said today.

By Nick Mann | 20 March 2013

The UK economy is expected to grow by just 0.6% this year as the ‘very challenging’ global situation continues to weigh down its performance, Chancellor George Osborne said today.

This is half the 1.2% forecast by the Office for Budget Responsibility in December, Osborne said in his Budget speech. Next year it is expected to be 1.8% rather than the 2% forecast previously.

The OBR cited a weaker outlook for consumer spending, business investment and exports as the reasons for its revised forecasts, and Osborne noted that the UK was ‘very exposed’ to what happens in Europe. The eurozone economy is now expected to remain in recession through 2013 after shrinking by 0.9% in the final quarter of 2012.

Osborne noted, however, that despite the eurozone difficulties and the domestic economy shrinking by 0.3% in the final quarter of 2012, the OBR expected the UK to have avoided slipping back into recession when figures for the first three months of 2013 were published.

‘Tough decisions’ meant the UK’s budget deficit was continuing to fall, Osborne said, noting that this year’s budget was fiscally neutral. The OBR expects the deficit to fall to 7.4% of gross domestic product in the current fiscal year, compared with 11.2% in 2009/10. The budget gap is then forecast to fall further to 6.8% in 2013/14 and continue to fall until 2.2% in 2017/18.

Including the transfer of the Royal Mail pension fund to the government in the figures would reduce the deficit even further, Osborne noted.

Public sector net borrowing – the gap between government spending and revenues – is expected to fall, both excluding and including the value of the assets of the Royal Mail pension fund and cash purchases associated with quantitative easing, Osborne said.

OBR figures, which exclude both factors, show net borrowing falling from £120.9bn this year to £120bn in 2013/14 and then gradually dropping to £43bn by 2017/18.

Osborne said the government was now on course to meet its ‘fiscal mandate’, which involves it balancing the amount it borrows to finance non-investment spending, adjusted for the state of the economy, five years ahead.

The OBR forecasts the UK will balance this cyclically adjusted current budget one year ahead of schedule, in 2016/17, when it expects it to post a 0.1% surplus.

The chancellor acknowledged, however, that the chances of meeting the supplementary target – for public sector net debt to be falling as a percentage of GDP in 2015/16 – had now ‘deteriorated’.

Debt is now forecast to be 75.9% of GDP this year and to then increase until peaking at 85.6% in 2016/17 and then beginning to fall.

Despite this, Osborne ruled out changing the government’s policies to reach the debt goal. ‘There are those who would want to cut much more than we are planning to – and chase the debt target,’ he said.

‘I said in December that I thought that with the current weak economic conditions across Europe that would be a mistake. We’ve got a plan to cut our structural deficit. And our country’s credibility comes from delivering that plan, not altering it with every forecast.’


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