Autumn Statement: 29 November 2010 onwards

In its autumn report on the state of the economy, the Office for Budgetary Responsibility (OBR) said that the UK had experienced stronger growth in 2010 than had been anticipated at the time of the June Budget.

The world economy, too, had grown at a stronger rate.

The OBR's central forecast is that the economy will continue to recover from the recession but at a slower pace than that seen in the 1970s, 1980s and 1990s.

The unexpected strengthening of growth in 2010 the OBR put down to firms rebuilding stocks at a faster rate than had been expected. As a consequence, the economy is set to expand by 1.8 per cent this year, up from the previous forecast of 1.2 per cent.

However, medium-term predictions indicate a slowing down in the rate of growth over the next two years as the effect of the spending cuts and the hike in VAT come into play. Next year, the OBR said that the economy will expand by 2.1 per cent (down from 2.3 per cent). Growth will accelerate to 2.6 per cent in 2012 and 2.9 per cent in 2013 before slowing to 2.7 per cent in 2014.

Unemployment should peak at just over 8 per cent in 2011 before dropping back to 6 per cent by 2015.

The OBR's central forecast predicted that the rate of inflation should slow from its current 3.2 per cent to 1.9 per cent, below the Treasury's target figures, by 2012 as the short-term impact of the VAT increase and other temporary factors subside.

However, the OBR report conceded that considerable uncertainty surrounded its central economic forecast, both on the upside and on the downside, and said its figures fall within a 10 per cent margin of probability.

As far as debt is concerned, the OBR said that borrowing should fall from its present level of 11.1 per cent of GDP to 1 per cent of GDP by 2015/16.

In its "best judgement", the OBR argued that the government has a better than 50 per cent chance of meeting its pledge on eliminating the structural  budget deficit by 2016 and of seeing public sector net debt fall between 2014 and 2015.

The OBR's proviso lay with its estimation of the UK's economic potential. Should the gap between that potential and actual output be 1.5 per cent GDP smaller than the OBR forecasts it to be, then the government could miss its public spending and borrowing targets.