George Osborne expected to unveil slashed growth forecasts

Autumn statement 2011: UK growth forecasts slashed amid economy gloom

Autumn statement 2011: UK growth forecasts slashed amid economy gloom

By Alex Stevenson

Britain will avoid a recession but official economic growth forecasts have been slashed, the chancellor has told MPs.

George Osborne confirmed downgraded GDP predictions made by the independent Office for Budget Responsibility (OBR) in their latest update.

The OBR revised 2011's growth forecast from 1.7% in March to just 0.9%. GDP growth for 2012 was predicted at the time of this year's Budget to be 2.5%, but is now forecast to be just 0.7%.

Mr Osborne blamed the muted growth on the eurozone crisis, caused by a "chronic lack of confidence in the ability ofcountries to deal with their debts", and an "external inflation shock" caused by hikes in global energy and food prices.

He said the government was on track to meet its deficit reduction targets but conceded that debt as a percentage of GDP would increase from 67% now to 78% in 2014/15.

The OBR's growth forecasts were made on the assumption that eurozone countries would find a way out of the current debt crisis. It predicted a "much worse outcome" for Britain if leaders cannot resolve the present unstable situation.

"If the rest of Europe heads into recession, it may prove hard to avoid one here in the UK," the chancellor warned MPs.

"We are now undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis."

Mr Osborne was attacked by shadow chancellor Ed Balls, however.

"Britain's economy was choked off a year ago, before the eurozone crisis," he said.

"It is his reckless gamble that has made things worse," he insisted, claiming the Treasury's economic and fiscal strategy was "in tatters".

Mr Osborne responded by saying Mr Balls was a "permanent advertisement" of "everything that went wrong" under Labour.

In his statement he said Labour had presided over a deeper boom and bust than previously thought, meaning the size of the structural deficit had increased as a result.

"Our debt challenge is even greater than we thought because the boom was even bigger, the bust even deeper, and the effects will last even longer," Mr Osborne said in his statement.

Britain's structural deficit is now projected to fall from £127 billion in 2011/12 to £120 billion in 2012/13 and £79 billion in 2014/15.

Despite the deficit dropping to £24 billion in 2016/17 Mr Osborne announced future public spending in 2016/17 and 2017/18 would continue at the same levels, effectively extending the spending cuts regime for a further two years.

The OBR predicted that unemployment would rise to 8.1% this year and 8.7% next year but would fall back to 6.2% by 2015.

Mr Osborne concluded: "What we offer is a government that has a plan to deal with our nation's debts to keep rates low.

"A government determined to support business and support jobs; a government committed to take Britain safely through the storm. Leadership for tough times – that's what we offer."