Growth forecasts cut as productivity stalls and Brexit looms

It blamed the country’s stagnant productivity, but also said the slide in the value of the pound since the Brexit vote had added to inflation and acted “as a drag on the economy”.

It said: “The persistence of weak productivity growth does not bode well for the UK's growth potential in the years ahead.”

At the March Budget, three weeks before Theresa May invoked Article 50, the OBR said it expected growth of 2 per cent in 2017, and nothing less than 1.6 per cent by 2021.

However in its new Economic and Fiscal Outlook, the OBR said it expected annual UK growth to average 1.4 per cent up to 2022 - the weakest forecast for almost 40 years.

The Institute of Directors called the numbers “ugly”, while the Resolution Foundation said the growth downgrade would result in a £1,000 a year cut to the average family’s income.

To offset the gloom, and help steady the economy through Brexit, Chancellor Philip Hammond announced he would spend £26bn more over the next five years than he planned in March.

He also announced £3bn extra for Brexit planning.

Presenting the OBR figures in the Budget, Mr Hammond insisted the economy remained strong, continued to create jobs and would “confound those who seek to talk it down”.

However he admitted productivity “continues to disappoint”, and had remained “stubbornly flat”, despite repeated predictions that it would return to pre-Crash levels.

He said that, on the OBR figures, borrowing was forecast to be £49.9bn this year - £8.4bn lower than predicted at the spring Budget - and would fall every year to £25.6bn in 2022/23, which he said was "its lowest level in 20 years".

He said the national debt would peak at 86.5 per cent of GDP this year, falling to 79.1 per cent in 2022/23, “the first sustained decline in debt in 17 years”.

He said he was still on track to balance the nation's books by the middle of the next decade.

However the OBR said that was “unlikely” and it could take until 2030/31.

When the Tories came to power in 2010, then Chancellor George Osborne said the deficit would be eliminated by 2015, but it has been repeatedly pushed back.

Speaking after the Budget, OBR chairman Robert Chote said: “It does look unlikely that the Government is on course to achieve [balance books by 2025/25] on current policy settings.

"If the deficit was to continue falling at the average rate expected beyond the end of this spending review, then it wouldn't reach balance until 2030/31.”

The OBR said it expected GDP to grow by 1.5 per cent in 2017 (down from 2 per cent in March), 1.4 per cent in 2018 (down from 1.6 per cent), 1.3 per cent in both 2019 and 2020 (1.7 and 1.9 respectively), 1.5 per cent in 2021 (2 per cent), and 1.6 per cent in 2022.

It also pencilled in productivity growth of 1.5 per cent year, compared to an average of just over 2 per cent before 2008.

Mr Chote said the slowdown was “in contrast to the experience of other major industrial economies”, with growth in the UK weaker this year than in the second half of last year, despite growth in the Eurozone, US, Canada and Japan being stronger this year compared to late last year.

He said: “We forecast that [the economy] will grow by 5.7 per cent between 2017-18 and 2021-22, significantly less than the 7.5 per cent we forecast in March.”

Labour leader Jeremy Corbyn said the Budget amounted to a “record of failure with a forecast of more to come”, criticising the Government’s failure to reduce the deficit.

He said: “The reality test of this Budget has to be how it affects ordinary people's lives.

"I believe as the days go ahead and this Budget unravels, the reality will be a lot of people will be no better off - and the misery many are in will be continuing."

Liberal Democrat leader Vince Cable said the economy would be £45bn smaller in 2021 than predicted in March: “And this is the least-worst-case scenario.”

He said: “Philip Hammond might as well have sat down and stopped talking once he announced this slump in growth figures. Britain has gone from top of the growth league to deep into the relegation zone.”

Ian Blackford, the SNP’s Westminster leader, said the Chancellor appeared powerless to stop the “economic self-harm” being caused by Brexit.

He said: “For the UK to be slashing growth forecasts when the global economy is enjoying the most synchronised recovery since the financial crisis, and our biggest trading partner is seeing its best growth in a decade, shows just how much Brexit is biting.

“With £3bn set aside to deal with leaving the European Union, it highlights even further what dire straits we are in, and post-Brexit Britain is going to threaten wages, living standards and prospects of people up and down the UK.”

Shadow Secretary of State for Scotland Lesley Laird added: “So much for strong and stable - under the Tories productivity is down, growth is down and wages are down.

“Every single major target the Tories have used to justify the past seven years of austerity have been missed. Despite this, the cruel and failing policy of austerity remains.”

David Lonsdale, Director of the Scottish Retail Consortium, said: “The downgrade in predictions for economic growth, productivity and consumer spending are sobering, more so as Scotland’s economy has recently underperformed the UK as a whole on these indicators.

“With household incomes under strain and shoppers cautious, it is imperative the Scottish Government’s own budget next month focuses relentlessly on economic growth.”

Yael Selfin, Chief Economist at KPMG UK, said: “While the forecasts may seem somewhat pessimistic, Brexit-related challenges could see further deterioration.

“The downgrade to the GDP growth forecasts has overshadowed the generally good news on public finances so far this fiscal year, reducing the money available to the Chancellor.”