Chancellor George Osborne used his Autumn Statement to blame the UK's sluggish recovery on the ongoing eurozone crisis and a poor exports market - refusing to acknowledge suggestions that his government's austerity measures could be hurting the economy.
The Office for Budgetary Responsibility, set up by Osborne to provide an independent view on how the government is spending tax payers' money, produced its latest economic forecast ahead of the Autumn Statement, and Osborne used its findings to add credibility to his insistence that the UK is slowly recovering.
He told the House of Commons on Wednesday: "One of the advantages of the creation of the OBR is that not only do we get independent forecasts, we also get an independent explanation of why the forecasts are as they are. If, for instance, lower growth was the result of the government's fiscal policy, they would say so, but they do not.
"They say the economy has 'performed less strongly' than they had expected.They forecast growth this year of -0.1%, but in their view 'the weaker than expected growth can be more than accounted for by over-optimism regarding net trade'.
"The OBR had previously assumed the eurozone would begin to recover in the second half of this year; instead, of course, it has continued to contract and that has hit our exports to these markets and the net trade numbers.
"The eurozone crisis has also, they say, spilled over into 'tighter credit conditions' and 'elevated UK bank funding costs'; in the OBR's words, these problems will 'constrain growth for several years to come'."
Osborne did then acknowledge the domestic challenges facing the UK economy, with gross domestic product growth shrinking by 6.3% since the start of the recession, but insisted steps were being taken to lead the UK into recovery.
But what do the economists think? Below are a snapshot of some of the leading economists' views.
Christopher Vecchio, analyst at DailyFX:
"Osborne's comments come as no surprise. The UK economy continues to struggle with high unemployment, high inflation and weak growth – all while the country struggles to reduce its deficit and debt for what will be a fourth year.
"These comments led to weakness in the GBP/USD, which, when considering the role of the Bank of England right now, leads one to believe that it is possible to see further easing in the months ahead.
"Fiscal policy has been increasingly tight in the UK the past several years, but instead of using the BoE as a medium to flood the market with liquidity, governor Mervyn King has implemented a monetary policy that complements this.
"Whatever lost economic output has been borne of chancellor Osborne's fiscal austerity has been in part made up for by the additional slack provided by the BoE and Governor Mervyn King."
Ian Stewart, chief economist at Deloitte:
"The chancellor has sensibly decided to spread the fiscal squeeze over a longer period than to try to make up for lost ground now with still more tightening.
“Progress has been made. The deficit has fallen by a third from its 2009 peak, and the government has a good chance of hitting its main target of eliminating the deficit by 2017. Yet the UK is only half way through an eight year programme of austerity. 70% of the planned tax rises have already taken effect, but 70% of the cuts to public spending still lie ahead."
Angus Campbell, head of market analysis at Capital Spreads:
"Our chancellor claimed today that progress is being made, but you only have to look at our mounting debt pile to see that in fact there is very little in the way of improvement to our fiscal difficulties.
"Without any growth the chancellor's debt reduction targets look unachievable at best. A cut of 1% in corporation tax and a cancelation of a fuel duty hike might grab a headline, but it's not going to enough to stimulate growth meaningfully, something that our economy so desperately needs. Even now the recent downgrades to the UK's GDP forecasts look like they might be lowered further in the months to come."
Economist Professor Geraint Johnes at Lancaster University Management School:
"The plans for deficit reduction, and specifically for government spending, in this statement indicate that the review will need to take a draconian stance. The extent to which that turns out to be feasible in practice will depend heavily on the broader macroeconomic context.
"If the European economy remains fragile beyond 2013, further fiscal retrenchment at home is likely to prolong still further the return to significant levels of growth."
Azad Zangana, European economist at Schroders:
"Taken at face value, the policy measures announced today represent fiscal tightening of £6.5bn. However, included in this figure are the £3.5bn expected to be raised from 4G licence auctions, and £4.9bn worth of spending cuts for 2017/18, not previously announced. If we exclude those, we find a £2bn giveaway for the next five years. This is unlikely to make much of a difference to the economy overall.
"It will be important for the chancellor to give a positive report in the spring Budget. Further fiscal slippage caused by weak growth from here could result in the loss of the UK's AAA rating."
More:Autumn Statement Business News UK Business Office For Budget Responsibility Chancellor George Osborne
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