Pressure is mounting on George Osborne to announce initiatives to boost growth in his Budget speech as the chancellor is expected to confirm the Office for Budget Responsibility has downgraded its GDP growth forecast below 1 per cent for 2013.
A year ago, the OBR forecast growth of 2 per cent in 2013, picking up to 2.7 per cent in 2014 and 3 per cent in the two following years.
The chancellor is expected to confirm OBR figures showing the UK economy will grow at a little less than 1 per cent for 2013, rising to just 1.25 per cent in 2014, less than half the rate forecast twelve months ago.
There are also broad expectations he will push back the point at which public sector borrowing will begin to fall by a further year, having already confirmed a one-year delay at the 2012 Budget to 2016/2017.
Ruth Lea, economic adviser to the Arbuthnot Banking Group, said: “The first ten months suggest that the December projections will be overshot”.
Institute of Fiscal Studies estimates show that, if present trends continue, underlying public sector net borrowing could have risen to £128bn for the 2012 financial year, £8bn more than the OBR’s December forecast for of £120bn.
Ms Lea said if allowance is made for the ONS’s recent ruling on APF receipts - the asset purchase facility, essentially the government’s investments into banks - then the actual net borrowing for 2012 may be around £92.5bn, £12bn higher than the £80.5bn forecast in December.
She said: “The shocking state of the public finances means that the Chancellor has, fiscally, little room for manoeuvre. It is widely expected that the Budget will be broadly fiscally neutral.”
In terms of tax changes, she predicted a deferral of the next fuel duty increase, a business rates freeze, a further increase in the basic personal allowance, and tax relief help for house-buyers and housebuilders.
She added that she expects the Budget will address possible changes to the Funding for Lending scheme, “which appears to be failing SMEs”, as well as a move away from the Bank of England’s focus on simplistic inflation targets, as mooted by incoming governor Mark Carney.
Ms Lea said: “The Budget is likely to be politically and economically neutral. It is clear that there will be no major alteration in the fiscal strategy – and this is correct.
“The OBR are likely to downgrade their growth forecasts further and show a further deterioration in the public finances projections. With the economy flat-lining, a key part of the Budget speech should concern growth policies with any progress on infrastructural projects of particular interest.”
Production data published last week for January 2013 pointed to a potential ‘triple-dip’ recession for the UK, with a sharp drop in manufacturing output likely to drag the economy into a second successive quarterly decline.