Pre-Budget Report expected to reveal grim forecasts

Nov 20 2008

FORECASTS published with next week’s Pre-Budget Report will reflect a grim new economic reality as the UK plunges headlong into recession.

As Chancellor Alistair Darling prepares a tax and spending windfall to stave off the worst of the downturn, Treasury predictions are set to show both slumping growth and spiralling borrowing.

In March’s Budget, Mr Darling was forecasting growth of between 1.75% and 2.25% this year, recovering to between 2.25% and 2.75% in 2009.

But the steady deterioration in the economy since has dampened this rosy picture as unemployment soars to an 11-year high above 1.8m and companies lay off tens of thousands of jobs.

Hopes of a short and sharp impact from the credit crunch have vanished, as business groups such as the CBI and British Chambers of Commerce have recently signalled.

The UK economy was stagnant in the second quarter of the year - ending a proud Labour boast of 63 consecutive quarters of growth – before a shocking 0.5% decline between July and September drew the first public warnings of recession from Prime Minister Gordon Brown.

Roger Bootle of Capital Economics said Mr Darling would have to “bite the bullet” and was likely to mark down 2008 forecasts to between 0.75% and 1% in 2008, and between 0.5% and 0% next year.

Mr Bootle, who himself predicts a 1.5% decline in output next year, added: “Even if forecasting an outright fall in GDP proves to be one step too far for the Chancellor, he will have to concede that the economy is at least unlikely to grow next year.”

Even before the likely tax and spending handouts planned, previous give-aways such as the £2.7bn spent on resolving the 10p tax row were set to add to borrowing, with a slowing economy hitting tax revenues.