23/12/2011 10:06 GMT

Euro Crisis: Fears Creating 'Uncertainty' About Britain's Economic Prospects Says Robert Chote

Fears over the future of the euro are creating a "big uncertainty" about Britain's economic prospects in 2012, the head of the Office for Budget Responsibility said on Friday.

The independent forecasting body last month downgraded its prediction for GDP growth next year to 0.7% - compared to 2.5% at the time of the March budget - in the wake of sluggish economic activity during 2011.

But even this pessimistic outlook depends on the eurozone countries struggling through the sovereign debt crisis without a collapse in the single currency, said OBR chairman Robert Chote. An escalation in the crisis could have knock-on effects on British exporters, banks and interest rates, even though the UK is not in the euro, he warned.

Mr Chote told BBC Radio 4's World at One: "The economy looks like it has probably grown by less than 1% during the course of this year and it is not going into next year with a great deal of momentum.

"As we look forward into next year, (the question) is whether we do see the gradual pick-up in underlying economic momentum that our forecast suggests we might hope for.

"The big uncertainty over that is developments in the eurozone. The forecast we presented a few weeks ago assumed that the eurozone struggles through. Clearly, if things turn out worse than that, it means a lot more uncertainty about the near-term prospects."

Because the eurozone crisis could develop in several different ways, it is difficult to predict exactly how the UK might be affected, said Mr Chote.

But he said that there were possible negative impacts through a fall in demand for British goods in major export markets in Europe, the exposure of UK banks to defaults overseas or increases in the cost of consumer, business and state borrowing.

"We identify it as a significant downside risk, but it is very difficult to point to a particular alternative state of the world that would be representative of all the ways it could turn out," said Mr Chote.

He acknowledged that neither the OBR nor any other forecaster was likely to get its predictions about the future of the economy entirely correct.

"Even if all your forecasts look accurate now, I guarantee you that they won't do once they have been revised by history," he said.

"I can't guarantee that our forecasts are going to be accurate. I can guarantee that they are going to be honest and won't be affected by politically-motivated wishful thinking."

Mr Chote said that there have been no attempts by ministers to put pressure on the OBR to put a more favourable spin on its figures since the body was created by chancellor George Osborne last year.

And he brushed off suggestions that the appointment of his wife Sharon White as director general of public spending at the Treasury would create any conflict of interest.

"I haven't had any professional contact with the current holder of that role," he said. "I don't think there's going to be any concern."

Asked whether his wife's promotion would put certain topics off-limits for breakfast-time discussion, he replied: "With two small children, we have plenty of other things to keep us busy round the breakfast table, so I don't think there's too much concern there."