Output will shrink 0.1 per cent this year, not grow 0.8 per cent as forecast in March, while next year’s forecast has been chopped from two per cent to 1.2 per cent, and 2014’s cut from 2.7 per cent to two per cent, the Office for Budget Responsibility (OBR) said.
And survey data from Markit yesterday showed the UK’s huge services sector grinding to a halt in November.
Slower growth means tax receipts will be lower than previously hoped – current receipts next year will come in at £643bn, down £1.9bn on March’s forecasts, while the following year’s £671.4bn haul is £15.4bn lower than previously predicted, and 2016-17’s revenues are set to come in at £706.1bn, £20.6bn less than planned.
That means the chancellor has had to extend his deficit reduction plan to 2017-18, announcing spending cuts and tax rises of £4.94bn in the year.
The OBR believes the chancellor will hit his target of balancing the structural deficit in five years’ time – a rolling target which now runs to 2017-18. Adjusting for the economic cycle, it predicts government will run a surplus of 0.4 per cent of GDP in 2016-17 and 0.9 per cent of GDP in 2017-18.
But it expects Osborne to miss his other goal to have debt as a share of GDP falling by 2015. In 2014-15 debt will stand at 79 per cent of GDP, up from earlier forecasts of 76.3 per cent. And it will keep rising to 79.9 per cent the next year, before falling in 2016-17.