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News : UK Economy Last Updated: Mar 20, 2013 - 3:11 PM

UK's official growth forecast for 2013 cut in half
By Finfacts Team
Mar 20, 2013 - 3:09 PM

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George Osborne, UK chancellor of the exchequer, today cut the official growth forecast in half, but insisted the UK would avoid a "triple dip" recession. In his Budget 2013 speech, he said the growth forecast in 2013 from the independent Office for Budget Responsibility would be 0.6% - - half the 1.2% that was predicted four months ago in the autumn statement.

The OBR expects employment to rise in every year of the forecast period reaching 30.5m by 2017. Total market sector employment is expected to rise by around 2.6m between the start of 2011 and the start of 2018. The OBR has revised down its unemployment forecast by 0.3 percentage points to 7.9% in 2013 and by 0.2 percentage points in 2017 to 6.9%. The inflation forecast is up slightly while public sector net borrowing is forecast to fall by a third over the three years from 2009-10, from its post-war peak of 11.2% of GDP, to 7.4% of GDP in 2012-13. It is then forecast to continue to fall to 5.0% of GDP in 2015-16 and 2.2% of GDP in 2017-18.

Public sector net debt as a share of GDP is forecast to peak at 85.6% of GDP in 2016-17, before falling to 84.8% of GDP in 2017-18.

The chancellor pledged to cut corporation tax to 20% from April 2015 - - to show Britain was "open for business" - - and crack down on tax avoidance to bring in £4.6bn over the next five years.

He announced £2.5bn of spending on infrastructure paid for by a further squeeze on public spending. Details of where the axe will fall will come in June when the government unveils its spending review. The Bank of England Monetary Policy Committee ha been given an updated broader remit, but keeps its 2% inflation target. The chancellor extended the 1% public sector pay cap by one year to 2015/16.

He unveiled measures aimed at boosting new businesses, including tax credits for research and plans to extend shared-equity schemes to help people get on the housing ladder together with to encourage more "affordable" homes to be built.

Budget documents

John Cridland, CBI director-general, said: “The CBI was clear this Budget needed to deliver a good dose of business and consumer confidence, while being necessarily fiscally neutral.

“We’re particularly pleased our call for a focus on the short-term boost of housing has been heeded, alongside an increase in longer-term big ticket infrastructure spending. This was recognition it was a mistake to cut capital spending so sharply and that other growth-boosting measures were taking too long. But by shifting £6bn to housing and infrastructure, the Government has sowed the seeds for growth and jobs.

“An extra one penny cut in corporation tax will also make the UK one of the most internationally competitive locations in which to do business. The new obligation on the Pensions Regulator acknowledged that the huge commitment employers are making to sustain pensions for employees cannot be separated from the drive for growth.

“Small and medium-sized businesses will be particularly encouraged that there was money available for the Chancellor to cut the jobs tax through a new employment allowance. We also need to remember the impact of business rates on the hard-pressed high street.”

John Williams, managing partner, Kuber Ventures, small business investment specialists, said: “We were promised a budget that would help fuel the infrastructure of our economy and to a large degree this is what we got. The reduction in corporation tax and the national insurance relief to be introduced next year are very welcome and should help invigorate the UK small business sector.

“The extension of the Capital Gains Tax relief for SEIS was signalled by the Chancellor as a victory for small businesses, but while many will appreciate the sentiment, the fact that the relief has been cut by 50% will have dampened spirits slightly.

“Noticeably absent from the chancellor's speech was any news of extending or enhancing the Enterprise Investment Scheme (EIS). Many were hoping to see the Government offer more help to start-up companies looking for second round finances, but nothing materialised.

“Nonetheless, the Government has addressed the elephant in the room, namely that the lack of commercial funding is stifling the future growth of the economy. The announcement that the Government is to set out the lending plans for the new business bank is both a positive and an exciting opportunity for the Government to make a real difference to the UK small business market."

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