Sean O'Grady: For Britain a one speed recovery beckons – slow

It may well have been called the 'growth budget' but it contained some highly disappointing indicators

The paradox, as the opposition leader Ed Miliband pointed out in his response, is that this was a Budget for growth that contained within it some fairly disappointing growth figures – plus inflation staying uncomfortably high well into next year, rising unemployment and an economic recovery noticeably more sluggish than either the equivalent 1980s or 1990s revivals. Not to mention "subdued" wages growth and consumer spending.

For despite the increase in income tax allowances, the cuts in fuel duty and a few other giveaways, there was nothing in the proposals that would seriously raise living standards in the short term. On the Office for Budgetary Responsibility's (OBR) own figures, the British economy will not return to its pre-recession levels of output until the fourth quarter of 2012.

Either by past standards, past forecasts, or against the current international league table, the UK's growth performance over the next few years is set to be poor. Even in the best year, 2013, when growth of 2.9 per cent is thought likely, that is not much beyond what was considered a normal year for the economy in the past and is very sluggish by the standards of past recoveries; a figure of above 3 per cent at least would suggest a rapid return to normal conditions.

Implicit in the OBR's figures must lie a grim projection about how easily the banks will be able to return to pre-recession norms of lending to business and the property market, notwithstanding the Chancellor's help for first-time buyers. The Chancellor has been able to maintain a growth trajectory that shows gradually improving levels of growth over the next five years, but they are much lower than had been hoped as recently as the OBR's outlook in November. Indeed, for the next two years, the economy will fare less well than previously thought, with the biggest hit this year. So rather than expanding by a relatively healthy 2.1 per cent in 2011 the UK will grow by an anaemic 1.7 per cent.

The Chancellor blames this on the rise in oil and other commodity prices, now exacerbated by the tensions in the Middle East; and higher inflation with presumably higher interest rates; he is right about identifying those "downsides", and they could easily become more unfavourable in the months ahead.

Mr Osborne also made great play of where the UK fits in the global league tables for competitiveness and growth. Yet our table reveals that even by advanced economy standards, and even taking into account the "supply side" measures in the Plan for Growth published yesterday, the UK is mediocre, not coming near the breakneck progress of India or China.

The upshot of that is an unemployment rate that is due to peak at 8.3 per cent of the workforce, rather than the 8.1 per cent thought in November – an increase of 60,000 taking it to around 2.6 million. Longer term the OBR backs the Chancellor's optimism about the scale of private sector job creation – about 1.3 million new jobs expected by 2015, though again that is down on the 1.5 million new positions projected in November.

Either way that ought to be sufficient to mop up the 400,000 jobs set to be lost in the public sector. However, there is no guarantee that the type of jobs or their location will be of use to those made redundant. Whether the new generation of 21 enterprise zones will be able to attract more jobs for unemployed workers remains to be seen. On the experience of the 1980s, it may simply mean jobs being relocated from areas just across the border, and the new businesses being less well rooted in local communities – sceptical points that the CBI, among others, has made publicly.

There was also relatively little in the measures to tackle youth unemployment and prevent shorter term cyclical unemployment when the economy is temporarily depressed turning into longer term structural unemployment as skills are lost and people become disengaged from the workforce. This "scar" on the labour market can persist for many years, as the aftermath of the shakeout of the 1980s proves. The respected National Institute for Economic and Social Research suggested this week that structural unemployment will be 1 percentage point higher on a permanent basis than it would otherwise have been – an extra 320,000 out of work. They see unemployment peaking at 8.8 per cent in the autumn, closer to 2.8 million.

Inflation, as ever, remains the most unpredictable variable of all; and with it the chance of the Bank of England being able to continue to support the economy through ultra-low interest rates. Tellingly, the Chancellor admitted that inflation would be 2.5 per cent next year, and between 4 and 5 per cent this year – both above the 2 per cent target. If the Bank is forced to raise rates faster and more steeply than everyone has assumed it could easily scupper what little growth the economy will see.

To that extent, the fate of the economy, of the Government and of Mr Osborne depends on the fate of Muammar Gaddafi, the House of Saud and the moods of Mervyn King, none that easy to foresee.

Public finances: Selling-off the banks will help balance the books

The Treasury will borrow £44bn more than was forecast as recently as November as growth prospects in the economy worsen, according to figures from the Office for Budget Responsibility. Apart from this year, borrowing is projected to be higher every year until 2015. And yet, more comfortingly for the Chancellor, the OBR also declares that his policies have a better-than-evens chance of meeting his fiscal mandate of eliminating the current structural deficit by 2015 and the "supplementary" goal of making a start on denting the national debt, which will peak at 70.9 per cent of the country's GDP in 2013, even higher than the peaks previously forecast.

The answer to the conundrum lies in the difference between the broad sums the Government needs to borrow and why; in a recession, or a sluggish recovery such as this one, it is generally accepted that a deficit can grow larger, as trying to tighten policy again might prove disastrously counterproductive. What Mr Osborne is targeting is different – the underlying or structural deficit and the one that relates to current spending – thing such as wages – rather than infrastructure investment – such as rail upgrades. As he stated, his Budget was largely "fiscally neutral" so, for good or ill, the "big picture" on the public finances remains the same: 80 per cent of the repair job to be done by cutting spending rather than raising taxes. Indeed the OBR goes so far as to say that the Chancellor will have "some margin for error in achieving this target".

Other independent authorities such as the Institute for Fiscal Studies and the National Institute for Economic and Social Research have previously said Mr Osborne will miss his 2015 targets, though narrowly.

Then again, as the chair of the Treasury Select Committee, Andrew Tyrie, has pointed out, any room for manoeuvre could be much wider if the Treasury manages to sell off various assets at favourable prices, principally their shares in the semi-nationalised banks and associated loan books. The US authorities turned a profit of $20bn on their most recent sale of formerly toxic mortgage backed securities. So far these possible sale proceeds do not feature in the main public sector finance figures and projections.

For now, Mr Osborne appears more or less on track, though hardly any of the reality of public spending cuts have made their painful presence felt. The IFS has said that these – the toughest in peacetime and among the harshest in the world – could prove "formidably hard to deliver".