Britain’s growth forecasts have been cut substantially as the government hacks away at government spending and the euro zone slips into recession.
The new growth forecasts from the independent Office for Budget Responsibility (OBR) came as George Osborne, chancellor of the exchequer, announced that he had missed an important austerity target, meaning the austerity program will be extended by another year.
Speaking in Parliament, Osborne said debt as a percentage of gross domestic product will not fall until the 2016-2017 fiscal year, a year later than the previous forecast, as the British economic recovery proves sluggish. In an effort to close the stubbornly large budget deficit, the austerity measures are to extended by one more year, to 2018.
The OBR now expects GDP to fall by 0.1% this year, against the last prediction, made in March, for 0.8% growth. In 2013, the OBR expects a mere 1.2% growth, down from 2%. In 2014, the GDP is expected to rise by 2% instead of 2.7%.
Shadow chancellor Ed Balls, citing the "slowest recovery in the last 100 years," pronounced the coalition government’s fiscal plan "in tatters."
The dramatically slower growth over the next few years will present an enormous challenge for Mark Carney, the governor of the Bank of Canada who is to become governor of the Bank of England next summer. There are few tools left in Britain’s pro-growth arsenal, meaning he may have to resort to more unconventional measures to help revive the economy.
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