The Office for Budget Responsibility (OBR) made a minor upward tweak to growth and downward tweak to borrowing projections after its savage downgrading in November, but these latest forecasts still make grim reading.
The downturn is already worse than the 1930s slump, when it took four years for GDP to return to its pre-recession peak.
This time round, four years on and output is still 4 per cent down. And the OBR expects the recovery to remain sluggish. Growth of less than 1 per cent is forecast this year and, although accelerating thereafter, output will not fully recover until 2014.
Government borrowing was revised down marginally, and no further measures were deemed immediately necessary to meet the chancellor’s fiscal rules: that the UK’s budget needs to balance within a rolling five-year time frame, and that net debt should peak as a percentage of GDP by 2015-16.
However, there is still a £100 billion hole in the public finances, and the fact that output has been broadly flat over the past 18 months – leading to the extension of spending cuts into 2016/17 to compensate for the consequent revenue shortfall – hardly suggests that the policy of ‘expansionary fiscal contraction’ is working as hoped.
There is a mountain of public spending cuts on the horizon. Will private demand expand to fill the gap? The chancellor must be hoping that a recovery in our major export markets and a return to consumption growth will spark the long- awaited investment boom.