The British economy faces a “sluggish” outlook with the recovery from recession likely to be slower than after previous recessions, the Treasury’s fiscal watchdog said.
The Office for Budget Responsibility cut its 2011 growth forecast to 2.1 percent from 2.3 percent and said the economy will expand 2.6 percent in 2012 instead of 2.8 percent. The economy will post faster-than-expected growth this year, it said.
“The economy will continue to recover, but at a slower pace than in the previous three recessions,” OBR Chairman Robert Chote told reporters in London today. There is “less comfort” about the chances of a double-dip recession, even though the level of output will be higher than thought.
Prime Minister David Cameron is facing growing public pressure over his plans to slash the record deficit, expected by the OBR to be 10 percent of economic output this year. The opposition Labour Party has called for the government to moderate the pace of tightening, saying the economy is too fragile to take it.
Sterling fell to $1.5541 at 3:24 p.m. in London, from $1.5600 before the announcement.
About 330,000 government jobs will be lost by 2015, 160,000 fewer than thought in June, the OBR said. The revision largely reflects Cameron’s decision last month to find an extra 7 billion pounds of welfare cuts and allocate the money to departments.
The budget deficit will be 117 billion pounds ($182 billion) in the year through March 2012, compared with a previous forecast of 116 billion pounds. The budget office added 1 billion pounds to its forecast for the four years starting April 2011. The deficit for the current fiscal year is forecast to be little changed at 148.5 billion pounds, it said.
The OBR raised its 2010 economic growth forecast to 1.8 percent from 1.2 percent after a growth spurt in the second and third quarters, but said the pace of expansion was unsustainable.
“The OBR’s forecast for a weak recovery reminds us all of the risks this government has chosen to take with the economy,” Labour Party Treasury affairs spokesman Alan Johnson said. “Growth forecasts have been cut for the next two years as the momentum in the economy this year fails to feed through to future years.”
Chancellor of the Exchequer George Osborne has said he is sticking to his spending cuts and rejected International Monetary Fund calls to scale back the tightening should the U.K. economy slide back into recession.
The OBR was set up by Osborne to oversee Treasury forecasts and judge the government against its goal of achieving structural budget balance in the year ending April 2016.
The OBR said there is a 70 percent chance of meeting the goal on existing tax and spending plans, and more than a 50 percent chance of doing so a year early, with the current budget forecast to show a surplus of 0.5 percent of gross domestic product in 2014-15 and net debt falling.
Osborne is delivering a statement to Parliament on the forecasts.
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