Pre-Budget Report 2008: the economy

24 November 2008

The Chancellor, Alistair Darling used his pre-Budget Report to introduce a far-reaching government plan to soften the looming recession.

Mr Darling described the economic times as “extraordinary and challenging” for the whole world.

The Report adds up to a £20 billion package of tax cuts and increased government spending in an effort to stimulate the economy.

Mr Darling conceded that the UK economy, buffeted by the credit crunch and the global slowdown, was entering recession.

The economy would expand by just 0.75 per cent this year and would shrink by 1 per cent next year. Only in 2010 would growth resume, the Chancellor said, predicting an expansion of between 1.5 per cent and 2 per cent.

With the government committed to borrow in order to fund both tax cuts – of which the 2.5 per cent reduction in VAT was the most eye-catching – and to boost public expenditure, the Chancellor said that the budget deficit would climb to £78 billion this year and £118 billion next, scaling back to £54 billion by 2014.

Inflation, Mr Darling said, would dip to as low as 0.5 per cent by the end of 2009.