Next Chancellor must cut deeply, economists warn

George Osborne's last Budget will slow the deficit reduction. Picture: Getty

Measures introduced by Chancellor George Osborne in March’s Budget will help the economy to grow but will also mean that the deficit reduces more slowly, according to the Centre for Economic & Business Research (CEBR).

The think tank now believes the economy will grow by 0.9 per cent this year, compared with its previous estimate in February of 0.5 per cent, while 2014 will bring growth of 1.4 per cent instead of 1.2 per cent.

Douglas McWilliams, chief economist at the CEBR, said: “The good news is a welcome return to growth for the UK economy.

“The bad news is that the relaxation of the Chancellor’s austerity programme risks a  financial crisis. And the chances of this happening would get higher if the markets think that the government after the next election gives reduced priority to getting the deficit down.”

McWilliams’ comments came a day after the International Monetary Fund (IMF) used its annual report on the UK to call for the coalition to boost infrastructure spending in order to stimulate faster economic growth.

Figures from the Office for National Statistics (ONS) also showed public borrowing rose to £10.2 billion in April from £8.9bn a year earlier.

The coalition had aimed to eliminate the deficit by 2015 but has been forced to push its forecasts back by two years due to weak economic growth.

Separate ONS data showed UK retail sales fell by 1.3 per cent in April, with economists warning that – even with the cold weather and Easter falling in March this year – the UK economy “isn’t out of the woods yet”.

The CBI’s monthly industrial trends survey revealed that confidence is continuing to grow among manufacturing businesses, with output expected to grow strongly over the next three months.