LONDON, England - June 15, 2010 - The economy, more damaged by the banking crisis than previously admitted, will grow more weakly and may never fully recover, the new Office for Budget Responsibility (OBR) said yesterday.

The conclusion adds billions of pounds to the total that George Osborne must find if he is to restore the public finances to health.

Public sector workers were warned yesterday that taxpayers could no longer afford their “unreformed, gold-plated pension pots” as the Lib-Con coalition government used the first OBR forecasts to step up efforts to prepare voters for next week’s budget.

Growth is forecast at 2.6% next year and 2.8% in 2012, far below Alistair Darling’s predictions for 3.25% and 3.5% respectively. This leaves Britain’s structural deficit - which is impervious to the economic cycle - bigger than feared over the next five years. It will hit 8.8% of GDP, or £123.7 billion this year, compared with Mr. Darling’s forecast of 8.4% of GDP. By 2014-15 it will have fallen only to 2.8% of GDP, the budget office said, rather than the 2.5% anticipated by Labour.

Mr. Osborne warned MPs that the figures made more urgent the task of “cleaning up the mess” in the Budget.
By next week, the Chancellor will outline how much he intends to raise in new taxes and spending cuts over the next five years. The coalition is committed to “significantly accelerate the reduction of structural deficit”. Treasury sources indicated that Mr. Osborne was determined to set an ambitious target despite the higher-than-expected total.