Chancellor Alistair Darling has cut his growth forecast for next year but offered hopes that the impact of the global credit crunch might be short-lived.
Mr Darling lowered GDP growth predictions for 2008 to between 2% and 2.5% – compared to the 2.5% to 3% predicted by former chancellor Gordon Brown during his last Budget in March.
But the Chancellor added that the economy remains on track for 3% growth this year and he maintained forecasts of between 2.5% and 3% for both 2009 and 2010.
His widely-expected move to cut 2008 growth predictions follows the summer’s financial turmoil when banks, fearful of exposure to losses on high-risk US mortgages, stopped lending to each other, leading to the run on mortgage lender Northern Rock.
GORDON BROWN’S eight-year crusade to boost Britain’s productivity performance suffered another heavy blow yesterday when official figures showed that growth in productivity collapsed to zero in the third quarter.
In the latest setback for the Chancellor’s hopes of securing a step change in the economy’s performance, the Office for National Statistics said that the headline gauge of productivity, output per worker employed, stalled in the three months to September.
The bleak picture was made yet worse by annual data showing that productivity growth in the year to the third quarter tumbled to a meagre 0.4 per cent — a 15-year low.
Gordon Brown has said the UK economy is having a “tough year” and slashed his estimate of growth in 2005 to 1.75%, half his estimate in March’s Budget.
But the chancellor said the UK economy remained stable despite high oil prices and slower house price rises.
He doubled the tax on North Sea oil profits, froze fuel duty and boosted pensioners and first time buyers.
Shadow chancellor George Osborne said Mr Brown had been “humiliated” into “admitting he had got it wrong”.
As Gordon Brown steps up to the dispatch box on Monday, he will be forced to acknowledge that the UK economy is slowing down.
The question is whether he will also accept that he is unlikely to meet his targets for the public finances.
The focus of this year’s pre-budget report will be the economic forecast.
Many economists believe that the government is still being optimistic about growth, and eventually will have to scale back its spending plans.