Tory grandees worries as Osborne says economic recovery is stalling


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Growing numbers of senior Conservatives are concerned about the ability of the Chancellor to deliver the Coalition's pledge of eliminating Britain's structural deficit by the time of the next election.

George Osborne conceded yesterday that the economic recovery would be "longer and harder" than he had hoped, as global markets faltered and fears grew over sovereign debt in the eurozone. Senior Tories are now worried that these factors will derail the Government's deficit reduction plans and curtail the Chancellor's ability to go into the next election on a middle-class tax-cutting agenda.

"It is a bloody horrible mess and the way out of it is not clear," one told i. "It was always going to be a big challenge to eliminate the deficit in one Parliament and now it seems impossible. People are concerned about the riots but the really important issue is the economic and financial crisis."

Another said that although Mr Osborne had a "year's grace" in his deficit reduction plans they still presented a "huge challenge" given the current market uncertainties. The concerns were also echoed by the Institute for Fiscal Studies, which warned yesterday that the Office for Budget Responsibility (OBR) was likely to downgrade growth forecasts for the UK at the time of its next report in November.

"There is no doubt that the Chancellor is in a pretty nasty position," said Paul Johnson, the Institute's director. "If the OBR downgrades its growth forecasts by 1.5 per cent he will have to decide whether to introduce even more draconian cuts or tax rises to meet his deficit reduction targets or whether to amend them.

"If he decides to amend them he will have to consider how the markets will react. That's a really hard place to be."

In the autumn, Mr Osborne will announce further plans to relax business regulations, employment law and planning bureaucracy in an attempt to kick-start the supply side of the economy. But his Treasury officials know that his room for manoeuvre is limited in the face of weak international demand, volatile markets and political uncertainly about the future of the Eurozone.