Britain's newly created budget watchdog downgraded economic growth forecasts today but did not radically alter the scale of austerity measure required from the country's coalition government.
Britain's economy will grow more slowly after this year than the previous Labour government expected but state borrowing will fall a bit faster than originally thought, the Office for Budget Responsibility said.
Its first pronouncement set the scene for the new Conservative-Liberal Democrat coalition's emergency budget on June 22.
Britain has a record budget deficit, running close to 11 per cent of gross domestic product, and the coalition is under pressure to reassure markets it will slash borrowing given fears of contagion from the euro zone fiscal crisis.
The OBR, created shortly after the coalition took office last month, said the economy should grow 1.3 per cent this year, in line with previous forecasts, but growth would only rise to 2.6 per cent in 2011.
Labour, which had been accused of adopting an overly optimistic outlook, had expected the economy to grow between 3 and 3.5 per cent next year. The OBR also pencilled in slower growth than Labour for the years ahead.
Nonetheless, the OBR stressed the uncertainty surrounding any economic forecasts. "All ... forecasts will be wrong, though some will be more wrong than others," said the head of the OBR, former finance ministry official and central bank policymaker Alan Budd. "It's our best shot at an impossible task."
The OBR, which uses its new central forecast for growth rather than more pessimistic estimates used in the March 2010 budget, expects public sector net borrowing to fall slightly faster than predicted in Labour's last budget.
Stronger tax receipts since the March budget have also helped the borrowing profile, the OBR said.
Sterling rose against the euro and the dollar and British government bonds trimmed losses after the overall downward forecast to the UK debt burden.
REUTERS