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By David Milliken
November 25, 2011 11:00 AM EST
Chancellor George Osborne will have to defend his flagship austerity programme against a growing political storm on Tuesday, when new government forecasts look set to show little growth next year and a big overshoot in borrowing.
Osborne's autumn budget statement is expected to show independent growth forecasts halved for next year to a little over 1 percent, allowing the opposition to ram home charges that the government has been overzealous with its scything cutbacks.
There is no sign that Osborne or the Liberal-Conservative coalition are set to back down on the measures, a major reason why Britain has avoided a similar plight to the euro zone.
But the new numbers increase the risk that, under pressure from a collapsing euro zone economy, growth will remain weak for much of the cabinet's term and Osborne has scant room to come up with low-cost growth measures to change that.
"There is public support for the austerity, as long as it is being seen to deliver in the medium term," said Tim Bale, professor of politics at the University of Sussex.
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"(But) if it clearly doesn't seem to be delivering economic growth -- and we still have high debt and deficit levels -- then I think the government will be in trouble with the public."
The Office for Budget Responsibility, the body Osborne set up just over a year ago to produce economic forecasts free from ministerial interference, is expected to slash its March growth forecasts, and predict higher borrowing for the next five years.
Osborne will be left with a wafer-thin margin to meet the coalition's fiscal targets, which require a budget surplus for non-investment spending within five years, as well as a falling ratio of public debt as a share of GDP by 2015/16.
Backing off on the austerity, however, even slightly, would risk throwing the country back at the mercy of bond markets who have already downed three euro zone economies and now threaten Italy and Spain.
"The Chancellor has zero room for manoeuvre," said Scotia Capital economist Alan Clarke.
"Against a backdrop of the financial market turbulence ... market confidence in the credibility of the public finances is critical. We believe it would be suicide for the government to abandon its fiscal austerity plans at this stage."
SLOW FALL
The OBR is expected to cut its March forecasts - 1.7 percent growth in 2011 and 2.5 percent in 2012 - in half, bringing them more into line with Bank of England forecasts last week and private-sector analysts.
That mean that public sector net borrowing is likely to fall more slowly than the OBR forecast. Economists at Barclays Capital forecast it will drop to around 126 billion pounds in 2011/12 rather than the 122 billion forecast, and then to 112 billion pounds in 2012/13, rather than 101 billion.
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