Budget 2012: George Osborne raises UK growth forecast

Growth chart

The UK economy will grow more quickly this year than previously forecast, Chancellor George Osborne has said.

The independent Office for Budget Responsibility (OBR) forecasts growth of 0.8% in 2012, compared with its autumn estimate of 0.7%.

The OBR also now estimates that the government will borrow £1bn less than previously forecast this year.

Mr Osborne said his Budget signalled the government's "unwavering commitment to deal with Britain's record debt".

Total borrowing up to the tax year 2016-17 will be £11bn less than forecast last autumn, Mr Osborne said.

The OBR confirmed that the government was on course to eliminate the structural current deficit by 2016-17.

Eurozone risk

The UK economy shrank by 0.2% in the fourth quarter of last year, but Mr Osborne said the OBR expected the UK to avoid a technical recession - defined as two consecutive quarters of contraction - and forecast positive growth for the first three months of this year.

Chancellor George Osborne said the assessment of the British economy was broadly unchanged

However, while slightly better economic growth is expected this year, the growth forecast for 2013 was revised down.

The OBR now projects 2% growth in 2013, down from the 2.1% it estimated in November.

In 2014 the economy is expected to grow by 2.7%, while growth of 3% is projected in both 2015 and 2016, in line with the previous forecast.

Mr Osborne said that the crisis in the eurozone remained a major risk to the OBR's forecast, while another risk came from a "further spike in oil prices".

Borrowing chart

Earlier, figures from the Office for National Statistics showed that the government borrowed much more than expected in February.

But the OBR still lowered its borrowing forecast for 2011-12 to £126bn from £127bn in the autumn.

Its estimate for 2012-13 remains at £120bn, excluding the transfer of assets from the Royal Mail pension fund to the government.

Its forecasts further ahead were also lowered. It now expects borrowing of £98bn in 2013-14 (compared with £100bn forecast in November), £75bn in 2014-15 (£79bn), £52bn in 2015-16 (£53bn) and £21bn in 2016-17 (£24bn).

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Howard Archer, chief UK economist at IHS Global Insight, said that the new forecasts from the OBR provided a "rare recent luxury" for Mr Osborne.

"This is of welcome relief to the chancellor and spares him having to tighten overall fiscal policy further," Mr Archer said.

But he added: "Having said that, projected GDP (gross domestic product) growth of 0.8% in 2012 is still worryingly weak and hardly a matter for celebration. And the very disappointing public finance data for February itself highlights that there are serious risks to the government meeting its fiscal targets."

'Long haul'

Ian Stewart, chief economist at Deloitte, said that while the Budget had a "spring-like" feel to it, people should not get too carried away.

The majority of public spending cuts, which are vital to the government's strategy for reducing the deficit, lie ahead, he said.

"The margin for error in reducing the UK's still huge deficit over the next five years is small and dependent on the unpredictable path of growth. There's still a long haul ahead for the UK economy."

Inflation, which has been falling steadily over the past few months and currently stands at 3.4% on the Consumer Prices Index (CPI) measure, is now expected to fall to 2.8% this year and 1.9% in 2013.

In November, the forecasts were for 2.7% and 2.1% respectively.

Unemployment chart

Unemployment expectations were unchanged, with a jobless rate of 8.7% forecast for this year, 8.6% in 2013, 8.0% in 2014 and 7.2% in 2015.

The unemployment rate for 2016 was revised up slightly from 6.2% to 6.3%.

But the OBR did forecast one million more jobs in the economy over the next five years.

And it revised its estimate for the claimant count - the number of people claiming Jobseeker's Allowance - down by about 100,000 for each of the next four years.

It is now expected to peak at 1.67 million this year, rather than 1.8 million.

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