The Office for Budget Responsibility, the new independent watchdog for the UK's public finances, has slashed official growth forecasts for next year, teeing up an even tougher emergency budget next week.
The OBR is forecasting growth of 2.6% in 2011, below the 3.25% predicted in March's Budget. It predicts borrowing of £155bn in the current financial year - below the £163bn forecast in the Budget - with total net borrowing over the next five years £23bn lower than expected in March.
The OBR said in its document: “Our conclusion is that there is a smaller amount of spare capacity and that future trend growth is likely to be weaker than was estimated in the March Budget.”
The OBR, headed by Alan Budd – a former Treasury official and a member of the B...