Growth forecasts to be cut

Julian Harris
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BRITAIN’S projected rate of economic recovery will be downgraded by the government’s fiscal watchdog this week, analysts expect.

In November the Office for Budget Responsibility (OBR) predicted 2.1 per cent growth for 2011 – considerably above most recent independent forecasts.

“We suspect that the OBR will lower its shorter-term GDP projections,” commented Investec’s Philip Shaw.

The Organisation for Economic Co-operation and Development (OECD) last week revised down its estimate of British growth, from 1.7 per cent to 1.5 per cent for this year.

However, the OECD insisted that the chancellor is right to continue with immediate spending cuts – the policy dubbed “Plan A”.

And today another group of leading economists is expected to urge further austerity.

Chancellor George Osborne must resist the temptation to grant any “give-aways” in this week’s budget, the Ernst and Young Item Club will say.

The deficit for the whole fiscal year will come in at £140.2bn, Item expects – around £8bn below the Office for Budget Responsibility’s (OBR) official forecast.

However, the slowdown in growth risks the “very small margin for error” in achieving the government’s fiscal mandate over the whole course of parliament, it believes.

“It is still very early days on the long and challenging road to fiscal balance,” according to Item’s chief economist Andrew Goodwin.

The government’s net borrowing up to this month is released tomorrow, one day ahead of the chancellor’s budget and the OBR’s new forecasts.

Total government debt will peak at 69.1 per cent of British GDP, according to the latest OBR projections.

Item is also expected to call today for the chancellor to commit to remove the 50p tax rate once public finances have sufficiently improved.