Britain Lowers Economic Growth Forecast

LONDON — Britain’s government said Tuesday that economic growth would be slower than initially predicted, forcing it to borrow more money and delay a planned reduction in its budget by a year.

In an update on Britain’s economy to the Parliament, the chancellor of the Exchequer, George Osborne, said economic growth this year and next would be slower than forecast in March and “debt will not fall as fast as we’d hoped.” Mr. Osborne said Britain could avoid falling back into a recession next year only if the euro zone finds a solution to the current crisis.

“If the rest of Europe heads into a recession, it may be hard to avoid one here in the U.K.,” Mr. Osborne told a packed Parliament.

Britain’s economy will grow 0.9 percent this year, less than the 1.7 percent predicted earlier, and 0.7 percent next year, the Office for Budget Responsibility forecast Tuesday. The agency predicted the economy would then pick up and grow 2.1 percent in 2013. The deficit would reach ₤120 billion, or $188 billion, in the fiscal year ending in 2013, more than the ₤101 billion forecast earlier.

The opposition Labour Party said the new forecast meant that Mr. Osborne’s strategy to cut the budget “is in tatters” and that “plan A has failed colossally.” The Labour Party called on Mr. Osborne to “change course before it’s too late” and scale back an aggressive debt reduction plan that was choking off the economy.

Separately, Britain’s public sector trade unions called for a general strike on Wednesday that is expected to cause delays at airports and hospitals and close some schools.

Mr. Osborne argued that an early implementation of the deficit plan last year helped Britain to keep its borrowing costs low. Unlike the United States or the members of the euro zone, Britain already has a far-reaching austerity plan along with interest rates at record low levels. It also has its own currency, which helped to keep British exports to the euro zone relatively cheap.

When Germany’s 10-year bond yields rose above Britain’s for the first time in more than two years last week, it was widely interpreted by the British government as a vote of confidence in Britain’s budget reduction efforts.

But Tuesday’s dampened outlook by the budget office — combined with warnings Monday by the Organization for Economic Cooperation and Development that Britain might fall back into a recession — put pressure on Mr. Osborne’s plan. Mervyn King, the Bank of England governor, also warned Monday that Britain was increasingly threatened by the crisis in the euro zone.

Mr. Osborne’s initial plan — that the private sector would help create jobs for the more than 600,000 public sector workers expected to lose theirs amid the government’s spending cuts — is jeopardized as Britain’s economic growth has stalled. Spooked by a worsening crisis in the euro area, many companies have frozen hiring or other investments.

Article source: http://www.nytimes.com/2011/11/30/business/global/britain-lowers-economic-growth-forecast.html?partner=rss&emc=rss