Darker growth outlook pushes UK austerity plan off track

Wed Dec 5, 2012 2:10pm EST
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By David Milliken and Peter Griffiths

LONDON (Reuters) - Britain will endure more austerity and miss a key debt-cutting goal as the economy looks set to grow far slower than previously thought, the government said, in a bleak outlook that could hurt Prime Minister David Cameron's re-election chances.

Finance minister George Osborne said welfare payments will be squeezed and tax rises and spending cuts will drag on for an extra year until 2018, as tight lending and weakness in the global economy hold back Britain's recovery.

In a half-yearly budget update on Wednesday, Osborne said weaker-than-expected growth meant he would be a year late in meeting a self-imposed target of seeing debt fall as a share of Britain's national income by the 2015/16 tax year.

Missing that goal is an embarrassment for Osborne, who has staked his reputation on wiping out Britain's deficit and cutting public debt.

It also raises questions about the safety of Britain's coveted triple-A credit rating, with ratings agency Fitch saying it damaged the country's credibility.

The opposition Labour Party - which leads Cameron's Conservatives by around 10 points in the polls, 2-1/2 years before a 2015 election - said the austerity drive had failed and was damaging Britain's recovery.

But Osborne said he would not abandon the government's flagship recovery plans after the financial crisis caused the "largest shock to our economy since World War Two".

"Britain is on the right track. Turning back now would be a disaster," Osborne told parliament to roars of disapproval from opposition politicians.   Continued...

Britain's Chancellor of the Exchequer George Osborne delivers his autumn budget in parliament in London December 5, 2012. REUTERS/UK Parliament