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Economic growth forecast is cut

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The Office for Budget Responsibility (OBR), set up by the coalition government to provide independent economic forecasts, has predicted that rate at which the UK economy is likely to expand will be lower than previously estimated.

According to the OBR, economic growth for 2011 will be 2.6 per cent, down from the 3 per cent to 3.5 per cent anticipated by the previous government.

However, public borrowing is likely to remain at £155 billion for 2011, the OBR report said, some £20 billion less than first forecast. Total net borrowing over the next five years is expected to be £23 billion less than predicted in the last administration’s March Budget.

The OBR said that the public deficit will fall to 10.5 per cent of GDP in the 2010-11 financial year, down from the 11.1 per cent estimated by Labour.

Overall net government debt, which represents total government borrowing, should slip back to 62.2 per cent of GDP in 2010-11, compared with the previous estimate of 63.6 per cent.

The structural deficit, which is that segment of the deficit not immediately reduced by economic growth, is predicted to increase from the previous forecast of 7.3 per cent of GDP in 2010-11 to 8 per cent, the OBR said.

The new figures, however, will only apply up until the emergency Budget of 22 June since any government action that will be announced then has not so far been factored in.

The downbeat nature of the forecast suggests that the government will press ahead with a swathe of public spending cuts and a series of tax increases.

The OBR is headed up by former Treasury chief, Sir Alan Budd.