Chancellor of the Exchequer George Osborne said the forecast for U.K. economic growth this year was cut by half as he lowered corporation tax and set out an updated central-bank remit to aid Britain’s recovery.
Gross domestic product will increase 0.6% this year, compared with a previous forecast of 1.2%, Osborne told Parliament in London as he delivered his annual budget statement today, citing the Office for Budget Responsibility’s predictions. The economy will grow 1.8% next year, compared with a previous estimate of 2%, and it will expand 2.3% in 2015, he added.
“It is taking longer than anyone hoped, but we must hold to the right track,” Osborne told lawmakers. “The problems in Cyprus this week are further evidence that the crisis is not over, and the situation remains very worrying,” he said, referring to the uncertainty over a planned European Union rescue package for the Mediterranean island.
Prime Minister David Cameron’s Conservatives are trailing the Labour opposition in the polls as voters blame the government’s austerity package for a persistent economic slump. With Bank of England policy makers split on the need for more stimulus, Osborne handed them greater flexibility today to meet their inflation target while dealing with economic shocks.
The pound stayed higher after the chancellor’s speech, trading up 0.5% today at $1.5168 as of 2:43 p.m. in London. The yield on the 10-year gilt was up 4 basis points at 1.867%.
Osborne set out an “updated” Bank of England remit, which reaffirmed its 2% inflation goal. In a separate letter, he stated the central bank was correct to interpret this flexibly.
“The new remit explicitly tasks the MPC with setting out clearly the trade-offs it has made in deciding how long it will be before inflation returns to target,” Osborne told Parliament. “The new remit also recognizes that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable.”
Recent data have fueled concern that Britain may be back in recession, after a 0.3% contraction in the final three months of 2012. Data today showed jobless claims fell less than economists forecast in February and a wider unemployment measure rose for the first time in a year as the number of young people seeking work climbed.