The latest update on Britain’s economy confirms it is performing worse than expected.
Finance minister George Osborne insisted that the economy is healing, but said there are no quick fixes.
In a budget update to parliament, he had to admit that higher government borrowing means spending cuts and tax rises will last for another six years – beyond the next election in 2015.
Osborne was jeered by opposition politicians as he was forced to announce the UK economy will shrink this year by 0.1 percent.
Just nine months ago he had forecast it would grow by 0.8 percent.
The economy was now forecast to grow by only 1.2 percent in 2013, well down from the 2.0 percent predicted in March, Osborne said, citing figures from the Office for Budget Responsibility, which is the independent fiscal watchdog.
As a result painful austerity measures must be extended by a further year into 2017/18 and welfare payments will be cut in real-terms.
Beyond our control
The finance minister stressed some of the problems are beyond his control, particularly the debt crisis in the eurozone which will hit Britain’s growth for several years.
His opposite number, the Labour party finance spokesman Ed Balls, made the most of the downbeat figures accusing the government of “economic failure”.
He said Osborne was stubbornly sticking to a failed austerity plan that has choked off growth, sapped demand and eroded much-needed tax revenues.
Balls asked if the eurozone was such a drag on the UK’s recovery, why had the currency area grown faster than Britain.
“It is simply reckless and deeply irresponsible of this Chancellor to plough on with a fiscal plan we all know is failing on the terms he set,” he said.
Osborne says he had no choice but to deal with a record budget deficit left by the last Labour government, which was voted out in 2010. As a result, he said investors still flocked to the British government bond market, keeping borrowing costs at record lows.
Nonetheless, Britain could be in danger of losing its prized triple-A credit rating before long.