Osborne should hold fire on Budget cuts, says EY Item Club

image copyrightPA
image captionGeorge Osborne says he will have to make more cuts to public spending

Chancellor George Osborne could "make a weak economic situation weaker" if he goes ahead with more spending cuts, the EY Item Club has warned.

The chancellor should "hold fire" on further cuts until the UK economy picks up, it said.

UK growth could be downgraded to 2% in Wednesday's Budget amid a slowing world economy, the forecasters predicted.

Mr Osborne said he was planning further cuts "equivalent to 50p in every £100" of public spending by 2020.

The chancellor will also detail plans in the Budget to hand millions of low-paid workers, who put aside £50 a month, a top-up of up to £1,200 over four years.

'Pretty tricky'

Martin Beck, senior adviser to the EY Item Club, told the BBC: "You could argue the low-hanging fruit - the easy cuts - have already been made and cutting further is actually going to be pretty tricky."

The government should instead focus on boosting the economy, particularly amid market turbulence and a slowdown in global economic growth, he said.

"That's what's caused us to think maybe the chancellor should be careful here and not potentially make a weak economic situation weaker," he said.

image copyrightGetty Images
image captionThe chancellor has faced calls to invest more in infrastructure to boost economic growth

The EY Item Club expects the chancellor to meet his aim of achieving a budget surplus by 2020, but of £4bn rather than the £10.1bn forecast by the Office for Budget Responsibility (OBR) in November.

That is despite lower predicted tax revenues on the back of weaker GDP growth, lower oil and share prices and softer wage growth, the forecasters said.

"This bad news will be mitigated by the prospect of lower government spending, due to the impact of lower gilt yields and inflation on debt servicing costs," it added.

The British Chambers of Commerce (BCC) last week downgraded its growth forecast for the UK economy from 2.5% to 2.2%, blaming "global headwinds and uncertainty".

EY Item Club is an independent forecasting group that uses the Treasury's model of the UK economy to make its predictions.

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