Osborne admits economic growth has slowed

In a speech at Lloyd’s of London last night, George Osborne warned that the recovery would be difficult and expectations would have to be lowered, but he insisted the government will stick to its economic strategy of tough deficit reduction.

He said the government’s austerity plans are the “rock of stability upon which any sustainable recovery depends”.

The chancellor also signalled that UK growth forecasts will be downgraded when he delivers his autumn statement to Parliament on 29 November – following the Bank of England, which downgraded its growth expectations in May.

He said: “We warned repeatedly that the recovery would be choppy… The plan we have set out is designed in tough times for tough times. It is the rock of stability upon which any sustainable recovery depends and we will hold to it.”

Mr Osborne said the UK economy was benefitting because the government had taken action “ahead of the curve”, compared with other countries.

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UK ‘ahead of the curve’

“We had an emergency budget last summer on our own terms – not this summer on the market’s terms – unlike so many other countries,” he said.

“We have been ahead of the curve. We have been a safe haven in the sovereign debt storm. We have delivered record low interest rates for families, businesses and taxpayers. We are not immune from what happens on our doorstep. But we can remain masters of our own destiny.”

However he said that this was not a time for a fundamental re-think, despite weak figures from the manufacturing, construction and service sectors and financial market turmoil recently upping the pressure on the Treasury for a change of plan.

We are not immune from what happens on our doorstep. But we can remain masters of our own destiny. George Osborne

Earlier this year, forecasts for growth in 2011 were as high as 1.7 per cent – but now the consensus is that the economy will only just scrape 1 per cent expansion.

Growth expectations

The chancellor said: “So, while we have all had to revise down our short-term expectations over recent weeks, the only people who should be fundamentally re-examining their view of the world are those who thought that this time was different,” he said.

“Those whose plans depended on unrealistic assumptions of a rapid return to business as usual and a continuation of forgiving financial market conditions. This government has never thought that this time would be different.

“We understood right from the beginning that the world of the boom years had changed beyond recognition.”

Shadow Chancellor Ed Balls said Mr Osborne was “in denial”.

“The British recovery was choked off last autumn, well before the global market turmoil we have seen in recent weeks. It’s time George Osborne got out of his denial and admitted that Britain now faces a growth crisis.”