2012 Autumn Statement - UK economy will shrink this year
05 December 2012
Author: Rupert Saunders
The Chancellor of the Exchequer was forced to admit that the UK economy will actually shrink this year during his Autumn Statement and reduction of UK debt will take longer than expected.
However he claimed that the British economy was "on the right track" and there would be no turning back from the "hard road ahead".
Quoting figures from the Office of Budget Responsibility (OBR), the Chancellor forecast a 0.1% reduction in Gross Domestic Product during 2012 and a 1.2% growth rate in 2013. This is significantly less than forecast at the time of the Budget speech in March when the equivalent figures were +0.8% and +2.0%.
The economy will continue to grow more slowly than predicted (2015: 2.3%, 2016:2.7%, 2018: 2.8%) to the end of the forecast period. The Chancellor said this was due to the ongoing Eurozone crisis and a slower than expected recovery in bank lending.
However, against expectations, the country's net deficit (the difference between government spending and tax revenue) will fall - partly as a result of some shuffling of spare cash across from Bank of England reserves - and government borrowing is now scheduled to drop below £100bn per annum in the 2013/14 financial year.
The slower than anticipated growth rate means that it will now take a year longer to reach the point at which debt (as a percentage of GDP) starts to reduce and that will not happen until 2016/17.
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