The Office for Budget Responsibility has revised GDP growth down to 0.9% for this year and 0.7% next year, but does not expect Britain to slip back into recession.
George Osborne revealed the prediction, made by the independent economic forecaster, as he began delivering his Autumn Statement in the Commons on Tuesday afternoon.
The chancellor also confirmed to MPs that he will not able to get rid of the structural deficit by 2015 as he had originally pledged.
Osborne announced his plans for boosting the UK economy against a background of financial turmoil in the eurozone and gloomy forecasts for Britain.
On Monday the the Organisation for Economic Co-operation and Development (OECD) warned that the UK was at risk of a double-dip recession.
Check our liveblog below for all the developments, analysis and to find out who will pay for the boost to growth:
Labour are 6/4 favourites to win the next General Election with William Hill who make the Conservatives 7/4, with another Hung Parliament quoted at 2/1.
‘The continuing economic problems seem to be boosting Labour’s chances of returning to power at the next General Election’ said Hill’s spokesman Graham Sharpe.
Household incomes will continue to be eroded in real terms for at least two more years, according to forecasts by the independent tax and spending watchdog.
The Office for Budget Responsibility (OBR) does not expect earnings growth to overtake the rate of inflation until 2013, and not by a significant margin until 2014.
The prediction will come as a blow to already hard-pressed consumers who have seen real household disposable incomes fall by 2.3% this year and will sound alarm bells among businesses that have borne the brunt of the spending squeeze.
The slow real-terms wage growth means consumer spending will be broadly flat throughout next year, the OBR said, applying further downward pressure to the UK's growth prospects.
|@ faisalislam : OBR: no net unemployment fall from Youth Contract. It will shift jobs from old to young|
Lydia Prieg, Finance and Business Researcher, said: “The funds raised from British banks via the bank levy are likely to be entirely cancelled out by the government’s corporation tax cuts. It is also worth remembering that the financial services industry is exempt from VAT, which has introduced significant distortions into the UK economy, and has very likely inflated banks’ profits.
“The taxpayer is nowhere near recouping the cost of the extraordinary support extended to the banking industry throughout the crisis (for example, the billions forfeited to recapitalize Lloyds and RBS), and this ignores the substantial on-going cost of financing these initiatives (which the NAO estimate to be approximately £5bn per year). The revenue raised from the bank levy (£2.5bn) will be a drop in the ocean compared to these costs, particularly given the cuts in corporation tax”
“The Chancellor conceded that a possible recession in the eurozone could further worsen economic conditions here, but did not signal a readiness to introduce deeper cuts in spending should this occur. It will be difficult for him to retain his hard-earned credibility in the markets should he fail to indicate that further reductions in spending may be necessary.”
“George Osborne is operating in difficult economic circumstances, but this is still a disappointing response. He has effectively ditched Plan A and embraced Plan A minus.
“He is not sticking to his deficit reduction policy. He is sticking to his spending policy. There’s a world of difference. The initial plan was to add £260bn to the national debt between now and the next election. That has now spiralled to £350bn."
The Coalition Government has today reaffirmed its commitment to the world's poorest people by confirming the UK will spend 0.7% of Gross National Income (GNI) on international development from 2013. We will be the first country in the G20 to keep this promise.
Our spending plans meant the UK was on course to exceed this target, so our budget has been adjusted accordingly
|@ BBCStephanie : OBR: GDP will be 3.5% smaller by 2016 then we thought. In today's money I reckon that's about £50bn of output lost, at the stroke of a pen.|
Responding to the Chancellor’s Autumn Statement today, Ian Brinkley, director of The Work Foundation, said: “The Chancellor has signalled some of the right long-term priorities – investment in infrastructure, support for enterprise and more help for young people.
“However, there is little that will put demand into the economy in the short-term, and the longer term measures outlined are too small in scale. There is still too much reliance on a spontaneous revival of the private sector.
“There are huge risks this forecast will turn out worse than expected. The OBR’s outlook on jobs and unemployment looks far too optimistic. Unemployment is likely to get higher and remain higher than the forecasts assume.”
Adrian Tink of the RAC said, ‘It’s a victory for common sense. With people paying in excess of £1300 per year just to go about their daily lives this needs to the first, not the last, step. This is welcome short term relief, but what is the Chancellor’s plan if prices keep going up next year’
Mark said: "It's time for the government to do a complete U-turn. One of the most shocking things revealed in the autumn statement is the OBR's prediction that 710,000 public sector jobs could go as a result of the cuts, by far the highest estimate yet. This will have a devastating impact on the economy and communities across the UK.
"The chancellor has also announced further attacks on workers, with a derisory public sector pay increase of 1%, well below inflation and a massive real terms pay cut.
"By bringing the rise of the state pension age to 67 forward to 2026 the chancellor has also sent another pension shock to public sector workers already reeling from the fact they will have to pay much more for far less in retirement. As the government plans to link public sector pensions to the state pension age - this means that everyone under 50 will have to work a further year for their pension. It gives public sector workers even more determination to strike ahead of the mass action tomorrow.
"The government has launched further attacks on workers, announcing changes to TUPE regulations and eroding health and safety legislation. which is bad for everybody. This is on top of making it more difficult to bring an employment tribunal against bad bosses."
“Taken as a package, the announcements in the Autumn Statement address many of the concerns raised by small businesses and are therefore to be welcomed. The key now is for the Government to be consistent, and set to the task of translating these policy intentions into tangible actions on the ground. “Targeting the rising cost of overheads is imperative to help firms weather the economic storm that could be heading our way, so measures to limit the rise in fuel prices and business rates are very welcome. “Small businesses are struggling to access finance and so the enterprise investment scheme will open up new sources of finance for new and growing businesses. We hope that the banks will pass on the lower interest rates to small businesses and that more finance will be available.”
"The test in this is not who people blame frankly; it’s whether or not it works. And at the moment, rather than borrowing less, the Government has to borrow more and that must be a concern to everyone.
"What I said before is that we were spending at the limit that the structural deficit, the bit of the deficit that doesn’t go away in the ups and downs of the economy, was about 3% in 2006/2007, largely because we were spending a lot of money on things like replacing schools and hospitals, and when it comes to blame, you know, whatever mistakes we made, the Conservatives and the Liberals were supporting our spending up until 2008, the Liberals, actually, up until 2010", the former chancellor told Sky News.
Well George Osborne has made his clear political choice.
The Autumn Statement contained lots of 'blue meat' designed to appeal to the Tory base.
If you run an SME or indeed are a climate change sceptic you will be very content with the Chancellor's message. If you rely on tax credits or work in the public sector and face several years ahead of below inflation pay agreements - you will not be quite so happy.
“The small print of the Chancellor’s autumn statement shows that the totality of tax, tax credit and benefit measures adopted by the Coalition Government or carried over from the previous Labour government will be regressive for the lowest 80 per cent of earners. The latest analysis will further damage George Osborne’s claim that those with the "broadest shoulders should bear the greatest burden".
“None of the Chancellor’s post-election assumptions have turned out to be true. Growth has stalled, the Eurozone has crashed, the structural deficit is bigger than previously thought and unemployment continues to rise as the private sector fails to take up the public sector slack", Brendan Barber said.
"Today’s budget announcement exposes just how dangerously colour blind the Chancellor really is when it comes to the green economy and the low carbon industries which can help lift us out of recession
“And the fact that the Osborne is taking £250 million away from hard pressed families to fund a big cash boost for some of this country’s most polluting industries – whilst also rushing through major cuts to the flourishing solar industry – simply beggars belief.
“Why agree on a much needed carbon tax to drag the UK’s energy intensive industries into the 21st century and pay for their contribution to the climate crisis, but then be scared into giving millions back because a few vested interests like Tata call your bluff?
“This backwards and expensive merry-go-round shows that the Government is completely clueless on how to manage the low carbon revolution – and risks relegating the UK to the backseat when it comes to climate change and renewables.
“Furthermore, the decision to scrap the 3p rise in fuel duty is scandalously short sighted and will set back our efforts to tackle transport emissions and air pollution. Instead, the Government should reverse the increase in VAT brought in at the beginning of the year – a better way of helping those finding it hardest to cope, as well as helping the economy to recover.”
"There is some good news for taxpayers in the Autumn Statement, but over time the Government still needs to do more to deliver lower and simpler taxes. If tax remains the heavy and uncomfortable burden it is today, growth will stay disappointing. Motorists will be grateful for a better deal as they have been overtaxed for years, although they will need to remain vigilant with a big hike still scheduled for next August. And it is right that the Government keeps pay for public sector workers under control, as they currently get a much more generous deal than those in the private sector. The Autumn Statement was a reasonable start in reacting to the huge challenges facing the British economy, but a more ambitious plan for growth will be needed by the Budget."
Lots to digest from George Osborne's pre-Budget report, Autumn statement – as anticipated, the announcements and figures came at a Brownite pace, leaving us all rather bewildered. Undoubtedly all sorts of unexpected consequences will emerge over the next few days. But just quickly, the main point, separate from the various announcements: the Office for Budget Responsibility has downgraded its growth forecasts.
“Attacking pay and employment rights whilst allowing the banks off so lightly will damage growth and do nothing to tackle youth unemployment. The Chancellor’s bank levy will raise only a fraction of what the Robin Hood Tax could raise.
“The announcement of an average 1% increase in public sector pay for the two years after the pay freeze is an added insult to public sector workers. Cutting pay and standards of living further, at a time when the Government is asking them to pay 50% more for their pensions, will have a devastating impact.
“Nowhere does the Hutton Report say that pensions are unaffordable. The Chancellor is only too well aware of this. This is a Government that is determined to press ahead with reform regardless of need. The Chancellor’s appeal to call off strikes could never have come at a more inappropriate time.
“Attacking workers’ rights under TUPE and cuts to health and safety protection make work even more precarious. This is completely inappropriate in a civilised society."
"His plans today may encourage a little more private spending at the margins. But against such huge headwinds, sustained public investment is the only route to growth. The time to dramatically close the deficit is after the crisis has passed, not as the storm clouds gather once again."
Cristina Odone at the Telegraph thinks MPs will hate it:
This was a provocative mini-budget, a real two fingers up at the Lib Dem coalition partners.
“The most important task the Chancellor faced today was to set a clear strategy for growth that would provide certainty to the UK’s businesses and the confidence they need to expand, and to a large extent that was achieved.
“Firms understand the importance of adhering to the austerity programme but were looking for reassurance that the government is doing everything it can within current spending plans to encourage growth, so we welcome the announcement of over 500 new infrastructure projects; new funding mechanisms to finance infrastructure; and plans for the government to enable small and mid-sized businesses looking to borrow to capitalise on low interest rates. The decisions to freeze fuel duty in the immediate term and cap rail fare rises are also positive steps at a time when consumer spending is already facing huge strains.
“There is still much more to be done to take Britain safely through the storm. It is frustrating that when it comes to issues such as the 50p tax rate or the cap on non-EU migrants, the government is allowing political considerations to influence decisions that should be based solely on economic evidence. Furthermore, it is a real disappointment that the Chancellor not only did not act on our advice to scrap Air Passenger Duty but introduced a double inflation rise which will reduce the spending power of British families and make the UK a less attractive destination for both tourists and businesses”.
“This is good news for train passengers. The Liberal Democrats are determined to stand up for passengers and I am glad the Coalition has done the right thing and protected them from the planned increase.
“Liberal Democrats want to see rail fares come down after years of Labour pushing them up above inflation, but as the Coalition deals with the mess we inherited from Labour it has not been possible to go as far as we would lik
“Liberal Democrats have cut taxes for working people and scrapping the fare hike is another sign of how we are determined to do as much as possible to give people practical help in difficult times" Julian Huppert said in a statement on Tuesday.
Conservative MP Claire Perry, who used to be an adviser to George Osborne, accuses Ed Balls of "quakanomics".
Will that term catch on?
Osborne says work experience places are already working well.
Is the increased infrastructure PFI by another name, asks public accounts committee chairwoman Margaret Hodge.
"how is he going to ensure that his scheme represents value-for-money for the taxpayers"
Osborne says the government are not proposing to provide "guarantees" for projects - "what I'm talking about here is not guaranteed projects like PFI."