Public sector pay restraint and the likelihood of further industrial disruption is the price Britain will have to pay for the current economic crisis. The reason is slow economic growth and much higher borrowing over the next few years, according to the Chancellor of the Exchequer.

The Office for Budget Responsibility (OBR), which provides an independent forecast of economic activity, has severely downgraded its growth forecasts for the next three years. It now says GDP growth this year will be 0.9% (down from 1.7% at the time of the spring budget); 0.7% in 2012 (down from 2.5%) and 2.1% in 2013 (down from 2.9%).

Public borrowing will rise as a result and the government will have to borrow an extra £113bn over the next five years.

However, the good news is that the OBR does not think the UK will sink back into recession – provided the eurozone gets its act together and European economies do not collapse.

In a number of cost saving measures, the Chancellor announced there will be a 1% cap on public sector pay, once the current pay freeze expires in 2013. The number of public sector jobs set to be lost by 2017 has also been revised up from 400,000 to 710,000.

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