Budget: Osborne's squeeze lowers growth forecasts

Budget at a glance

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The coalition Government's clampdown on spending and tax hikes has prompted the independent Office for Budget Responsibility (OBR) to lower growth forecasts.

The OBR last week forecast 1.3% and 2.6% growth for 2010 and 2011 in its initial pre-Budget estimates - but today the body predicted 1.2% growth for this year and 2.3% in 2011.

The OBR left its 2012 forecast of 2.8% unchanged, and edged up its growth forecasts for 2013 and 2014 - although experts warned the savage cuts could have a bigger impact than expected on growth.

Capital Economics chief European economist Jonathan Loynes said: "The OBR has responded to the additional tightening by trimming its near-term projections for the economy, but the forecasts still look pretty optimistic to us, given the likely impact of the fiscal squeeze itself."

The clampdown comes amid a still-fragile economic recovery after the deepest and longest UK recession since official records began. The economy finally returned to growth in the last three months of 2009 but growth slowed to just 0.3% in the opening three months of this year.

Public borrowing will also be lower than previously forecast in the current financial year at 149 billion thanks to Mr Osborne's "unavoidable" cuts - falling to just 37 billion by 2014/15.

The Chancellor, who wants to make 77% of the savings through spending cuts and 23% through tax rises, said the Government's "formal mandate" was to balance the UK's structural current deficit as well as cutting debt as a share of GDP by 2015/16.

The OBR says the Government is on course to meet both targets a year early as a result of the measures unveiled - including an 11 billion programme to slash welfare by 2014/15 as well as a VAT hike to 20% which will bring in 13 billion extra a year by 2014/15.