Britain's budget deficit to spiral as EU debt crisis hits growth
Published 20/10/2011 | 05:00
Britain's budget deficit may be £16bn (€18.3bn) higher than planned by April 2013 as the fallout from Europe's debt crisis hits economic growth, according to independent forecasts published by the Treasury.
The shortfall will be £128.1bn in the fiscal year through March 2012, £6.1bn more than the Office for Budget Responsibility (OBR) predicted in March.
Borrowing in the following fiscal year will be £9.7bn more than the £101bn planned, the survey showed.
Prospects for output, meanwhile, fell by the most this year. Economists predicted growth of just 1pc in 2011, down from 1.2pc seen last month and March's 1.7pc OBR forecast.
The figures paint a picture of deepening pessimism as Chancellor of the Exchequer George Osborne prepares to present updated forecasts from the budget office at the end of November.
"Economic growth is likely to fall considerably below what they were expecting," Samuel Tombs, an economist at Capital Economics, said. "That's why borrowing will be higher, not just this year but in the future."
Mr Osborne is facing criticism that his plan to eliminate the structural deficit by 2015 is acting as a brake on an economy teetering on the verge of a second recession in three years.
The Labour opposition says his plan will result in a bigger deficit because it will hurt growth, pushing up welfare costs and sapping tax receipts.
Prime Minister David Cameron defended the cuts in Parliament yesterday and said Labour's "crazy plan" to slow the pace of deficit reduction would add £23bn to borrowing this year and £100bn by the end of the current parliament in 2015.
"There is not a single country in Europe that thinks you deal with your debts by adding to your debts," he said.
Sixteen of the 29 forecasts in the Treasury survey were received in October. These are more pessimistic than the three-month average, showing growth of 0.9pc this year and 1.3pc in 2012.
Mr Cameron and Mr Osborne say their strategy relies on getting the Bank of England to stimulate demand. The central bank raised the ceiling for so-called quantitative easing to £275bn from £200bn.
Bank of England Governor Mervyn King said the euro-region debt turmoil and slowing world economy had delayed the recovery. (Bloomberg)