The UK economy is failing to bounce back fast enough, the government’s spending watchdog has warned.
In a private submission to the Treasury, the Office for Budget Responsibility told chancellor Jeremy Hunt that it overestimated the prospects for medium-term growth in the economy last year and it intends to revise its forecasts down.
The downgrade would wipe out all of the government’s £9.2bn headroom in Hunt’s autumn statement and limit his scope for manoeuvre as he draws up plans for the Budget.
In November, the OBR forecast that while the economy would shrink by 1.4% this year it would pick up next year, with GDP averaging about 2.6% over the rest of the forecast period. It now appears that the OBR intends to reduce its forecasts by between 0.2% and 0.5% due to weakness in the economy and shortages in the labour market.
