Economic recovery next year, says Darling

9 December 2009

Alistair Darling's pre-Budget report admission that public borrowing in 2009 will exceed forecasts was greeted with jeers from the opposition, as did his later comment that his government took its decisions from “a position of strength”.

Darling told MPs he is confident the UK economy will start growing by the turn of the year, despite an expected 4.75% contraction this year. He said the task of the pre-Budget report - the last before 2010’s general election - was to “secure the recovery and promote long-term growth”.

“The choices are between going for growth or putting the economy at risk,” he added.

Earlier this year, Darling forecast the economy would shrink by 3.5% during 2009 as a whole, but would recover before the year was out. There would be 1.25% growth in 2010 and 3.5% from 2011, he predicted.

In his pre-Budget report, Darling stuck to his guns and insisted that 1% to 1.5% growth next year is realistic.

However, he admitted that public borrowing in 2009 would be £178 billion – exceeding his previous forecast of £175 billion.

Mark Bolsom, head of UK trading desk at Travelex, says: “It is incredibly disappointing that Darling’s 2011 growth forecast has stayed at 3.5%, which is an optimistic figure. Even his 2010 growth forecast of 1% and 1.5% seems optimistic, as it has been jeopardised this week by downbeat UK data. The UK is not out of recession yet - data continues to be mixed and our recovery sluggish.”

Looking ahead, Darling said borrowing should fall to £176 billion in 2010 and £97 billion by 2013/14.

He promised new legislation to ensure public sector borrowing falls every year and is more than halved by 2013/14 to meet the deficit forecast plan. This is a "sensible" timetable, said Darling.

As a share of GDP (the official measure of economic health), public borrowing will be:

* 12.6% in 2009
* 12% in 2010
* 9.1% in 2011
* 7.1% in 2012
* 5.5% in 2013/14

It is eventually forecast to fall to 4.4% in 2014/15.

Darling also said that net debt will reach 56% of GDP this year, 65% in 2010 and 78% by 2014/15.

He said the government would reduce its deficit by "encouraging growth, fairer taxes and tighter public spending".
Jonathan Loynes, chief European economist at Capital Economics, says the pre-Budget report shows the chancellor has done little to either support the economy in the near-term - or to move the public finances back to a more sustainable position over the medium-term.

He adds: “But with the general election only six months away, this was always likely to be largely a holding operation. A much bigger fiscal tightening is still likely to be unveiled after the election, whoever is stood at the despatch box.”

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