LONDON — Britain’s economy is now expected to shrink by a worse than expected 0.1 per cent this year, George Osborne has told MPs.
The Office for Budgetary Responsibility blamed problems in the eurozone and said the economy would bounce back next year, the chancellor said.
“It is taking time but the British economy is healing after the biggest financial crash in our lifetime,” he said to loud jeers from Labour.
He was updating MPs on the state of the UK’s finances in his Autumn Statement.
Osborne said: “It is a hard road but we are getting there. Britain is on the right track and turning back now would be a disaster.”
The Office for Budget Responsibility is expected to give further details of its downgrading of forecasts for growth in figures to be released alongside Osborne’s statement.
If the figures are as bad as many expect, the chancellor could be forced to abandon two key coalition targets: A five-year plan to eliminate the underlying deficit, which could be stretched to eight years, and his commitment to have Britain’s debts falling as a share of GDP by 2015.
Paul Johnson of the Institute for Fiscal Studies told the BBC the apparent “permanence” of the UK’s low growth was the real problem in terms of the public finances, rather than the chancellor’s slipping time scale.
Osborne is being tipped by the Financial Times to freeze the three pence a litre fuel duty rise planned for January.
And The Times says the chancellor will introduce measures to force banks to hand over a higher proportion of their profits in tax — and to squeeze the international aid budget, while still meeting the UK’s commitment to spend 0.7 per cent of GDP on it.
Liberal Democrat President Tim Farron claimed his party had blocked Treasury plans to cut housing benefit for under 25s and limit welfare payments to families who have more than two children.
“I am fairly confident we have stopped all this. I don’t think there will be a freeze on benefits as well,” he added. (BBC)