Budget 2016: George Osborne warned further austerity will damage the economy

Chancellor George Osborne has been warned that he risks damaging the already struggling UK economy with another round of spending cuts

Details have started to emerge of the Budget Osborne will present on Wednesday (AFP/Getty)

Chancellor George Osborne has been warned that he risks damaging the struggling UK economy with another round of spending cuts.

The EY Item Club, an economic forecasting group, said that the Chancellor should “hold fire” on further cuts until the UK economy picks up or risk downgrading economic growth to just 2 per cent.

UK economy growth could slip from 2.5 per cent to 2.2 per cent even without further cuts, the British Chambers of Commerce has said, because of slowing global growth.

Details have started to emerge of the Budget Osborne will present on Wednesday, including planned cuts equivalent to 50p in every £100 of Government spending by 2020 in order to make a further £4 billion of cuts.

Osborne must make the cuts to try and reach his goal of a budget surplus by 2020. EY Item Club said they expected the Chancellor’s budget surplus to be reduced from £10.1 billion to around £4 billion, more than halving Osborne’s margin for error.

The cuts are expected to be more savage than the last round because many of the easier cuts have been made, the group said.

Martin Beck, senior adviser to the EY Item Club, told the BBC: “You could argue the low-hanging fruit - the easy cuts - have already been made and cutting further is actually going to be pretty tricky.”

The Government should instead focus on boosting the economy, particularly amid market turbulence and a slowdown in global economic growth, he said.

“That's what's caused us to think maybe the chancellor should be careful here and not potentially make a weak economic situation weaker,” he said.

One potential area for tax increases is fuel duty, the EY Item Club said, which have been frozen in cash terms since 2011.

“Given the extent to which petrol prices have fallen in recent months, the Budget would seem an opportune time to increase fuel duties,” it said.

EY Item Club is an independent forecasting group that uses the Treasury's model of the UK economy to make its predictions.