Official forecasts of UK economic growth have been slashed by the Office for Budget Responsibility (OBR).
But Chancellor George Osborne told the House of Commons that the independent OBR is not predicting recession for the UK - as the Organisation for Economic Co-operation and Development (OECD) did yesterday.
The OBR predicted growth at 0.9% for this year and 0.7% for 2012 - sharply downgraded from 1.7% and 2.5% in its last forecasts at the time of the March Budget. Growth is then expected to pick up to 2.1% in 2013, 2.7% in 2014, and 3% in 2015 and 2016.
Delivering his keenly-awaited Autumn Statement to MPs, Mr Osborne said that the OBR blamed lower-than-expected growth on the sovereign debt crisis in the eurozone.
And the Chancellor told MPs: “Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts.
“We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth.”
Mr Osborne said that the OBR’s central judgment was that the Government will meet its fiscal mandate of eliminating the structural deficit by 2015/16 - a year after the next general election.
“We are set to meet our budget rules and we are going to see Britain through the debt storm,” he told MPs.
The Chancellor said the OBR analysis had shown the debt challenge was “even greater than we thought because the boom was even bigger, the bust even deeper and the effects will last even longer”.
The analysis showed the proportion of the deficit that was structural was greater than anticipated.
Borrowing was falling “but not at the rate that had been forecast”, he said.
He said the OBR expected it to be £127 billion this year - falling to £24 billion a year by 2016/17.
Lower market interest rates meant repayments would be £22 billion less than predicted over the course of the parliament, he said.
Treasury estimates suggested that, under Labour’s plans, the UK would have had to borrow an additional £100 billion - putting the UK “at the centre of the sovereign debt storm”, he said.