Britain slashed its 2012 growth forecast yesterday, blaming the impact of the eurozone sovereign debt crisis, and laid out an ambitious infrastructure building programme costing £30 billion.
Much of Europe now appears to be heading into a recession...
The economy is expected to grow by 0.7 per cent next year, about a quarter of the previous official forecast of 2.5 per cent in March, according to the country’s independent Office for Budget Responsibility.
Gross domestic product is forecast to expand by 0.9 per cent this year, about half the prior guidance for 1.7 per cent growth, the OBR added. GDP is forecast to grow 2.1 per cent in 2013 and by 2.7 per cent in 2014.
“Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts,” Chancellor of the Exchequer George Osborne said in his autumn statement.
“We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth.
“Today, we set out how we will do that by demonstrating that this country has the will to live within its means and keep interest rates low,” he added.
The coalition government’s strategy of tackling a huge debt and public deficit with rapid cuts in current expenditure is being closely watched by many analysts around the world. At the same time the central bank is buying up government debt massively.
Mr Osborne said the OBR had stopped short of predicting a double dip recession for Britain – but refused to rule it out. “If the rest of Europe heads into recession it may be hard to avoid one here in UK,” he warned.
The OBR also cited the “chilling effects” of the instability in the eurozone sovereign debt crisis on Britain. And Mr Osborne added that the government was “now undertaking extensive contingency planning to deal with all potential outcomes of the eurozone crisis”.
Although not a member of the eurozone, Britain is a key trading partner of the neighbouring bloc. The spending statement comes on the eve of a nationwide strike by public sector workers in protest over pension reforms and a day after the OECD think-tank warned that the country was heading for a double-dip recession.
Alongside the major growth downgrades, Osborne also unveiled plans to boost infrastructure expenditure by £30 billion (€35 billion) in a concerted bid to stimulate economic activity.
The cash will be invested in the development of roads, railways and high-speed broadband Internet services.
“We are publishing the national infrastructure plan today. We are identifying over 500 infrastructure projects we want to see built over the next decade and beyond,” Mr Osborne said.
The Treasury will help to fund the projects with £20 billion of private investment from pension funds.
Mr Osborne also said the government would launch a “national loan guarantee scheme” to encourage lower interest rates on loans to small businesses, with the aim of boosting economic activity.
Initially, £20 billion would be available over the next few years for the scheme.
The OBR had been widely expected to downgrade its growth forecasts as the economy buckles under the weight of the eurozone crisis, austerity measures and a major squeeze on consumer spending.
Mr Osborne said he would stick to the coalition government’s plans to slash the deficit and axe spending, in order to safeguard Britain’s prized top-level credit rating amid deep concern over European sovereign debt.
The Conservative-Liberal Democrat coalition’s plans have already sparked anger in the public sector, with up to two million people expected to go on strike today over pension reforms. In a gloomy development on Monday, the Organisation for Economic Cooperation and Development (OECD) said that the British economy will shrink in the final quarter of 2011 and the first quarter of 2012. That would place Britain in a so-called “double dip” recession. The economy has struggled to fully recover after clawing its way out of a vicious downturn that ended in the third quarter of 2009.