THE UK’S economic growth forecast for this year was slashed in half yesterday by the government’s spending watchdog, pushing up the expected deficit in coming years yet again.
The Office for Budget Responsibility said the economy will grow by just 0.6 per cent this year, not the 1.2 per cent forecast in December, and 1.8 per cent in 2014, down from previous predictions of 2.1 per cent.
Weak exports were the biggest drag on growth as key markets like the Eurozone are performing poorly, pulling down growth by 0.8 percentage points in 2012.
But government spending is still boosting GDP as most of the deficit reduction so far has been achieved through tax hikes, not spending cuts.
Borrowing fell just £0.1bn in the year, and would have gone up without a last minute cut of £5bn from departmental budgets that tipped the figures in George Osborne’s favour.
The deficit will come in at £120.9bn in 2012-13 and £120bn next year, meaning borrowing will barely have budged in three years despite the chancellor’s pledges to improve the public finances.
And beyond 2014 the numbers continue to run away from the chancellor.
The OBR expects total spending to rise by 0.2 per cent in real terms in 2015-16, and even after seven years of deficit reduction from 2010-11 to 2017-18, spending will have edged down by just 2.7 per cent.
High spending figures and weak tax receipts mean the debt is now expected to peak at 85.6 per cent of GDP in 2016-17, well above the previous forecasted high point of 79.9 per cent and coming a year later.
Inflation forecasts were also hiked. The OBR now predicts consumer prices to rise 2.8 per cent this year, 0.3 percentage points more than it had previously expected.