Pre-Budget 2008: The economy

Alistair Darling has delivered his assessment of the UK economy’s prospects as it descends into recession.

Standing before parliament yesterday, the chancellor of the exchequer for the first time set out how poorly the economy will perform.

He said next year the first two quarters of 2009 the economy will shrink – but claimed growth will return in the second half of the year.

He expected GDP to fall by between 0.75 per cent and 1.25 per cent in 2009 – pointing out the IMF predicted all economies to face downturn.

In 2010 he predicted 1.5 to 2 per cent growth.

He stated the Pre-Budget Report was “made against a background of uncertainty not seen for generations.”

He added: “I want to take sensible steps to help people now.

“My aim is to provide support for families and business. and put in place measures for sound public finances.”

Mr Darling added: “I am confidence slowdown will be shallower and shorter than would have been the case.”

He outlined global bank losses and share losses have occurred while food and fuel prices have raged.

“The result is sharp reduction of growth around the world,” he said.

He added: “UK economy faces crisis from a position of relative strength.

“We did fix the roofs that needed fixing.”

He explained the UK would suffer more greatly from the credit crisis as London is a world of centre of finance.

George Osborne, Conservative shadow chancellor, described the economic forecasts as “vastly optimistic”.

In the 2007 pre-Budget report, Mr Darling stated he expected UK growth to be two to 2.5 per cent.

In reality growth was 0.75 per cent.

He stated last year: “Britain, the fastest growing advanced major economy in the world.”

However, soaring oil and commodity prices along with the credit crisis have massively eaten away at the UK economy.

Tom Clougherty, policy director of the Adam Smith Institute, was suspicious of the plans to raise taxes and spending to boost the economy.

“The chancellor’s so-called tax cuts are no more than a political smokescreen to distract from mounting debts caused by increased borrowing which is going through the roof, which will be with us over the next decade to not good purpose,” he said.

“Government spending to boost the economy has not worked in the past and it will not work this time.”