Darling cuts growth forecast in first Budget

Source: Exec Digital UK

Date :12/03/2008 14:02:31

In his first Budget, the Chancellor Alistair Darling unveiled a package of measures he claimed would maintain growth and keep inflation and interest rates low.

As expected, he cut the UK’s growth forecast for 2008, to the upper end of independent estimates to 1.75 - 2.25 percent as he delivers his first Budget report.

The forecast, given in last autumn’s pre Budget report, was for growth to slow from around three percent in 2007 to two to 2.5 percent this year.

Despite this, he estimated that growth would recover to between 2.25 percent and 2.75 percent in 2009 - when the government is expected to gear up for a spring election campaign.

Fuel duty

Among the measures he unveiled was a widely-expected postponing of the increase in fuel duty which was due in April, but will now take place in October.

He said fuel duty will rise 0.5p a litre by 2010, but postponed until October the 2p increase scheduled to take effect now.

Motorists' organisations, including the AA, RAC Foundation and the Freight Transport Association, had been calling on Darling to scrap the planned increase to ease the burden on businesses hit by rising energy prices.

Commodity prices

Alcohol duty will rise six percent above inflation. Duty on beer will rise 4p a pint, with 3p more on cider, 14p on a bottle of wine, and 55p on a bottle of spirits - all increasing by two percent above inflation for the next four years.

The Chancellor said inflation would rise in the short term under pressure from rising food and commodity prices, but insisted there would be “no return to the inflation rates of the early 1990s”.

"We will do everything in our power to maintain stability, keeping inflation and interest rates low and maintaining our record of growth," he said.

Borrowing, spending

Turning to fiscal policy, he said government debt, now 36.6 percent of GDP, would be 37.1 percent of GDP this year, lower than forecast in the pre-Budget report.

Government borrowing, however, would rise to £43 billion in 2008-09, around £7 billion higher than forecast in the PBR, and would remain higher than previously expected for the two years after.

He said public spending would tighten further after the current spending round period, with the annual rate of real growth in public spending squeezed to 1.9 percent.

Living under Labour

Responding to the budget, Conservative leader David Cameron said anyone watching the speech “will conclude that the chancellor and prime minister live in an entirely different world,” adding that Britain “could hardly be worse prepared for an economic slowdown”.

“The cost of living is going up and Labour is making it worse, he said. “Everyone has now learnt the cost of living under Labour.”

March 12, 2008