Budget 2013: Ratings agencies warn of UK downgrade

The Office for Budget Responsibility (OBR) revealed that the continued slump in high-street spending, business investment and exports would leave the UK growing at just 0.6 per cent this year, and only 1.8 per cent next.

It prompted fresh warnings from the City that other ratings agencies could follow Moody’s and remove Britain’s triple-A credit rating.

The warnings came as the Chancellor was spared the humiliation of having to admit to MPs yesterday that his borrowing figures for this year were above those of the year before.

But the OBR said Mr Osborne’s efforts to reduce borrowing had “stalled”, showing this year’s figure was only £0.1 billion lower than the previous 12 months.

That minuscule drop prompted claims that Treasury ministers had “massaged” the figures, by telling government departments to put off planned spending until the new financial year.

The OBR also revealed that the continued high levels of borrowing meant Britain’s total debt mountain would rise to a peak of £1.63 trillion by 2017, or double the sum the coalition inherited in 2010.

That might now spook lenders, analysts warned, who may fear Britain’s ability to rein in its debts could no longer be assured.

Introducing his Budget yesterday, Mr Osborne chose not to sweeten the economic pill, admitting the road to recovery was “taking longer than anyone hoped”.

Pinning the blame on the eurozone crisis, he warned “another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard again”.

With 40 per cent of exports going to Europe, he said there was now a “huge effort across this government” to grow trade across the world.

The OBR pinpointed what it called the “unexpectedly poor performance of exports” as the key reason GDP was falling off. It revised down expectations for export growth from 3.1 per cent to a mere 1.5 per cent.

Its overall new growth estimate of only 0.6 per cent compares with the 2.8 per cent figure that the OBR forecast for 2013 three years ago, when the government and economists predicted a speedy bounceback from the financial crash.

Turning to last year, it revealed that a dip in receipts from the North Sea had seen tax receipts plunge by £5bn, compared with previous estimates. To compensate, the OBR found that the annual deficit would have risen – in a devastating blow to Mr Osborne – had the Treasury not taken drastic measures, slashing government department spending and “pushing some spending into 2013-14”.

However, Chief Treasury Secretary Danny Alexander denied yesterday that this amounted to a plan to “massage” the figures. But he conceded: “Of course, the borrowing numbers are not falling as much as we’d like.”

OBR chairman Robert Chote said the failure of ministers to reduce borrowing this year could be expected to continue over the coming 12 months.

While the deficit has fallen by a quarter since the record year of 2009, Mr Chote said: “That decline has now stalled. We expect the underlying deficit to be around £120bn last year, this year and next year.”

Ratings agency Moody’s has already downgraded Britain’s credit rating from triple-A. Fitch, which still ranks Britain as AAA, said yesterday it would now examine the case as well.

“In line with our guidance after the autumn statement, Fitch will conduct a formal review of the UK rating in 2013 incorporating detailed analysis of the Budget announcement,” it said in a statement.

Analysts said the third ratings agency, Standard and Poor’s, could also look again at the UK.

Labour said the coalition had reneged on the “deal” with voters, in which austerity would be rewarded by now with the “good times”. Leader Ed Miliband said: “Three years on, what does he say? Exactly what he said three years ago. We still need four more years of pain, tax rises and spending cuts. In other words, after all the misery, all the harsh medicine, all the suffering by the British people, three years, no progress, deal broken.”

The OBR also warned that there remained “considerable uncertainty” about its latest forecast, given the instability across the world, including Cyprus.

Its analysis concluded that there remained a 30 per cent chance that the economy could shrink in 2013, sending Britain into a triple-dip recession.