Britain's budget hole bigger than feared, warns watchdog
BRITAIN has a bigger budget hole to fill than the previous government forecast, the country's fiscal watchdog said yesterday in an initial report that sets the stage for the deepest spending cuts in a generation.
One week before the government's emergency budget, the newly formed Office for Budget Responsibility (OBR), the independent body set up by the new government to assess the state of public finances, cut its forecast for economic growth to 2.6pc next year and 2.8pc in the following years, down from the previous government's forecasts of 3.25pc and 3.5pc respectively.
Cyclically adjusted net borrowing, the part of the deficit that is structural, is forecast to fall from 8pc of gross domestic product this year to 2.8pc by April 2015 instead of the 2.5pc predicted by the Treasury in March.
Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since the 1970s in his emergency budget on June 22.
Fitch Ratings said last week that Prime Minister David Cameron's coalition needed to step up the pace of reductions to protect Britain's top credit rating.
"The problem may not be any bigger but the proportion of the problem that needs to be addressed with spending cuts or tax increases is greater," said Danny Gabay, director at Fathom Financial Consulting and a former Bank of England and government economist.
"The reason the UK has a fiscal problem is not to do with the crisis -- it's structural."
Sterling climbed 1.5pc to $1.48 as of last night in London. The 10-year gilt yield was nine basis points higher at 3.55pc.
The OBR, led by former Bank of England policy maker Alan Budd, forecast the overall deficit will be £22bn (€26.5bn) lower over the next five years than the Treasury predicted in March.