Economy frozen in Osborne's icy clutch of fiscal austerity

Actual spring is several weeks late, but it should be on its way.

Unfortunately, release from the economic deep freeze is running years late, evoking thoughts of the seemingly endless winter in the fantastical land of Narnia in CS Lewis's The Lion, the Witch and the Wardrobe. And there was no sign of a thaw yesterday in Mr Osborne's fourth Budget, as official forecasts of borrowing and debt were hiked amid the continuing lack of growth.

Growth projections published at the time of Mr Osborne's debut Budget in 2010 by the Office for Budget Responsibility, the independent body created by the Chancellor to provide objective forecasts, have turned out to be as fantastical as CS Lewis's novel.

The OBR yesterday halved its forecast of UK growth this year from 1.2% to just 0.6%. Experts at the highly regarded Capital Economics consultancy are forecasting growth in UK gross domestic product (GDP) of just 0.2% this year.

Yet, from what we were told in 2010, the economic temperature was meant to be positively balmy by now.

As Mr Osborne hiked the scale of annual public spending cuts and tax rises to be in place by 2014/15 by £40 billion to £113bn in his first Budget, the OBR projected growth of 2.3% in 2011, accelerating to 2.8% in 2012 and to 2.9% in 2013, and then easing to a still-punchy 2.7% in 2014 and 2015.

The reality has been very different, as wise voices including Stirling University visiting professor and former Monetary Policy Committee member David Blanchflower had warned the Chancellor it would. Given the scale of Mr Osborne's fiscal austerity programme, and the global banking sector crisis, the type of bounce-back from the Great Recession of 2008/09 envisaged by the OBR and the Conservative-LibDem Coalition never looked credible.

The UK economy grew by just 0.2% in 2012, not by 2.8%, having eked out expansion of 0.9% in 2011.

It is teetering on the brink of its third recession since 2008.

While Germany and the US have bounced back above their pre-Great Recession peaks in output, UK GDP is mired 3% below the level to which it rose in the opening quarter of 2008. Germany's superior position is particularly interesting, given Mr Osborne's growing propensity to blame the UK's economic woes on eurozone troubles.

And the UK is not projected to rebound quickly from here to its pre-Great Recession level of output.

Mr Osborne highlighted the OBR's central forecast that the UK would avoid triple-dip recession.

UK GDP fell by 0.3% in the final quarter of last year. A further fall in the opening three months of 2013 would constitute renewed recession.

The OBR is hardly betting the farm on the UK avoiding renewed recession, projecting growth of just 0.1% this quarter.

Fears of the UK suffering its third recession since 2008 were fuelled this month by data from the Office for National Statistics showing manufacturing output plummeted by 1.5% month-on-month in January, leaving it down 3% on a year earlier.

This situation is at odds with Mr Osborne's vision, in his March 2011 Budget, of a "Britain carried aloft by the march of the makers".

At the time of last March's Budget, the OBR was projecting UK growth of 2% this year. It cut this forecast to 1.2% in December. The latest 0.6% growth forecast for this year contrasts with the 2.9% expansion for 2013 forecast by the OBR in 2010.

The OBR yesterday cut its forecast of UK growth in 2014 from 2% to 1.8% – well adrift of a long-term average annual rate of expansion of around 2.5%. It still projects growth will accelerate to 2.3% in 2015, 2.7% in 2016, and 2.8% in 2017. Given the lack of accuracy of its longer-term forecasts in 2010, we should not bank on such a rapid acceleration.

Mr Osborne went for dramatic impact with his "penny off a pint" revelation on beer duty.

He rather skipped over the billions of pounds of additional public sector borrowing now projected in coming years because of the UK's economic woes, which have seen the country stripped of its triple-A credit rating by international agency Moody's.

The OBR has raised its projection of public sector net borrowing in 2012/13, the fiscal year just ending, from £80bn at the time of the autumn statement in December to £86bn. The net borrowing forecast for 2013/14 has been hiked from £99bn to £108bn, and that for 2014/15 raised from £88bn to £97bn. The net borrowing projection for 2015/16 has been increased from £73bn to £87bn, with the forecast for 2016/17 hiked from £49bn to £61bn and that for 2017/18 raised from £31bn to £42bn. In June 2010, the OBR projected 2015/16 net borrowing of £20bn.

And the OBR forecasts that, excluding the Government's decisions to bring Royal Mail's historic pension fund assets into the public sector and to transfer the cash balances in the Bank of England's asset purchase facility to the Exchequer, underlying public sector net borrowing will be £120.9bn in 2012/13 and £119.8bn in 2013/14.

Outstanding UK public sector net debt, as a share of annual GDP, is projected to rise from 71.8% in 2011/12 to 75.9% in 2012/13, and then to 79.2%, 82.6%, 85.1% and 85.6% over the following four fiscal years to 2016/17, before falling to 84.8% in 2017/18. Mr Osborne's target is for public sector net debt to be falling as a share of GDP in 2015/16, so this looks almost certain to be missed.

In December, the OBR projected public sector net debt as a share of GDP would peak at 79.9% in 2015/16.

The OBR now forecasts public sector net debt will rise from £1104bn in 2011/12 to £1637bn in 2017/18.

It projects the UK unemployment rate, on the International Labour Organisation measure, will be 7.9% this year, before rising to 8% in 2014, then falling to 7.9% in 2015, 7.4% in 2016, and 6.9% in 2017.

Mr Osborne made much of better-than-expected unemployment figures recently. However, in 2010, the OBR projected an ILO unemployment rate of 7% for this year, falling to 6.1% by 2015.

There is no doubting the OBR's latest grim forecasts tell the tale of a much longer and harsher economic winter than the Chancellor expected.