The economic background of Chancellor George Osborne’s fourth Budget speech could hardly have been more challenging. After he declared that the economy was “on the road to recovery” in his December Autumn Statement, some significant obstacles appeared along with that road.
Economic and Fiscal Update
Confirmation that the economy shrank by 0.3 percent in the final quarter of last year followed by Moody’s downgrading of the UK’s AAA credit rating. The first time since the 1970s that the UK hasn’t held the highest rating possible with this agency.
Manufacturing output fell by 1.5 percent in January, leaving the UK at serious risk of falling into a recession for the third time in five years. Avoiding the triple-dip now looks increasingly unlikely. Against this background, the Office for Budget Responsibility (OBR) revised down its forecast for GDP growth in 2013, from 1.2 percent down to 0.6 percent.
The OBR now expects 1.8 percent growth in 2014 (revised down from two percent), 2.3 percent growth in 2015, 2.7 percent in 2016 and 2.8 percent in 2017. It projects 600,000 more jobs in 2013 and 60,000 fewer people on employment benefits. The deficit has reduced to 7.4 percent of GDP in 2013, from 11.2 percent in 2009/10. It’s expected to fall to 6.8 percent in 2013/14 and 5.9 percent by 2014/15. The Government will borrow £114 billion in 2013. Borrowing will then fall year-on-year to £108 billion in 2014, £97 billion in 2015, £87 billion in 2016, £61 billion in 2017 and £42 billion in 2018.
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