Britain will endure more austerity and break a central debt-cutting promise to cope with weaker growth, the Government said yesterday, in a bleak outlook that will do nothing to improve Prime Minister David Cameron‘s re-election chances.

In a half-yearly budget update to parliament, Osborne said weak growth meant he would be a year late in meeting a self-imposed target of seeing debt fall as a share of Britain’s national income by 2015/16. Missing that goal is an embarrassment for Osborne and it also raises questions about the safety of Britain’s coveted triple-A credit rating.

The economy was now forecast to grow by only 1.2 per cent in 2013, well down from the two per cent predicted in March, Osborne said, citing figures from the independent Office for Budget Responsibility.

The Government’s fiscal watchdog expected the economy to shrink by 0.1 per cent in 2012, compared to a prediction of 0.8 growth in March, and grow by two per cent in 2014, compared to the 2.7 per cent previously forecast.

Although yesterday’s OBR forecasts showed Osborne was set to miss his debt reduction goals, there was less slippage than many economists had expected. Britain’s structural current budget into balance is still on track to be met in the 2016/17 tax year – in contrast to widespread expectations that this would get pushed back to 2017/18.

But a sluggish economy has wrecked the Conservative-Liberal Democrat coalition’s original plan to wipe out a large structural deficit before the next election due in 2015.

Osborne said he would consult on new tax incentives for the shale gas industry, extend a high-speed rail line into northwest England and launch a new £1.5 billion finance facility to support UK exports.

Under pressure to do more to restore growth, he said he would cut the main rate of corporation tax by a further one per cent. It will stand at 21 per cent from April 2014.