Gordon Brown was forced to eat humble pie yesterday by admitting the economy would grow this year at just half the pace he had hoped for.
The Chancellor had already used the opportunity of an overseas meeting of finance ministers in September to abandon his forecast of 3 to 3.5 per cent growth for this year, signalling a final result of between 2 and 2.5 per cent.
But with the annual rate running at 1.7 per cent and just three weeks of the calendar year to go he had little choice but to cut his prediction to 1.75 per cent - in effect halving it from the midpoint of his original forecast.
He also shaved a bit off his forecast for next year - taking it down to a midpoint of 2.25 per cent from the Budget's 2.75. He raised the outlook for growth in 2007 to 3 per cent from 2.5 per cent.
But the Chancellor showed little sign of humility. He blamed the unforeseen doubling of oil prices for the slowdown in growth - although he was jeered at by the Opposition benches for his trouble. "This has been the toughest and most challenging year for the economy," he said.
His theory was not wholly shared by the Bank of England, whose governor, Mervyn King, highlighted last month the rising tax take on consumers as a major reason for the slowdown in consumer spending. The new forecasts still leave the Treasury more optimistic than than City banks or academics. A Treasury survey of economists published last month showed an average independent forecast for growth of 2.1 per cent in 2006 and 2.5 per cent in 2007.
Ironically it was the Bank who handed the Chancellor a "get out of jail free card" by publishing upbeat growth forecasts in its inflation report. Its central projection is for GDP growth of 2.5 per cent in 2006 and 3.25 per cent in 2007.
John Butler, a UK economist, pointed out that at as a result the level of GDP was not substantially lower than predicted in the Budget and this would therefore limit long-term damage to their public finance projections.
The Chancellor challenged his critics to prove him wrong and derided the Conservatives. "Some in this House predicted Britain would return to the old familiar stop-go cycle of overheating, inflation and recession," he said.
"This year we have seen ... not the economy in recession but growth even in this toughest year at 1.75 per cent."
Shadow Chancellor George Osborne seized on Mr Brown's downgrading of his growth forecasts. "I don't remember him telling the electorate before the general election that the economy was facing a tough and challenging year," he said
The breakdown of the figures showed consumer spending would not hit the levels the Treasury had hoped for in the Budget. The slowdown - which the Chancellor described as "necessary" - sees spending growth drop from 3.3 per cent last year to 1.7 per cent this year. This will rise to 2 per cent next year and 2.5 per cent in 2007.
Howard Archer, UK economist at Global Insight, said: "The Chancellor cannot hide from the fact that a key reason behind [the slowdown] lies with the marked slowdown in consumer spending for which he has to take some of the blame given the increased tax burden."Reuse content