Decline in economic growth expectations until 2017

High inflation rates have squeezed household incomes and consequently lowered consumer spending. The eurozone crisis has impacted on business and consumer confidence.

The OBR expects the underlying momentum of the economy to pick up through 2012 but with the headline measure of GDP broadly flat until the second half.

The central forecast is now for:

• 0.7% growth in GDP in 2012;
• 2.1% in 2013;
• 2.7% in 2014; and
• 3% in 2015 and 2016.

Public sector net borrowing (PSNB) is expected to total £127 this year (8.4% of GDP), but the downward revision of growth forecasts means the deficit will shrink less quickly over the next five years, with a forecast of £53 billion PSNB (2.9% of GDP) in 2015-16.

Unemployment is expected to rise further to 8.7% in 2012 before falling back to 6.2% by 2016.

The OBR estimates that the Government has a roughly 60% chance of meeting its mandate to balance the structural or cyclically-adjusted current budget by 2016-17. The central economic and fiscal forecasts assume that the euro area finds a way through its current crisis, but a more disorderly outcome is clearly a significant risk.

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