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Growth, inflation and government borrowing

The world economy was hit by a succession of shocks during 2007 and 2008, with the financial crisis of late 2008 starting a global downturn. Recessions are being experienced in most of the world’s major advanced economies and the world economy is set to contract by one and a quarter per cent in 2009, the first fall in the post-war period.

Budget 2009 projects that the UK will experience a sharp recession in 2009 with the economy contracting three and a half per cent, before growth picks up from late 2009 with growth of one and a quarter per cent in 2010. The economy is then forecast to grow strongly in 2011 at three and a half per cent.

	2007	2008	2009	2010	2011
Economic forecast (per cent)	3	0.75	- 3.5	1.25	3.5

The depth of the recession is forecast to be greater than was expected, and much deeper than the recession of the early 1990s.  The downturn is not expected to be as deep as the early 1980s.

Inflation will fall to one per cent by the end of 2009 and remain below target during 2010. Inflation is then forecast to return close to target during 2011.

In the UK, borrowing is forecast to peak at 12.4 per cent in 2009-10 before falling as the economy recovers and the government takes further action to ensure sustainability.

Spending on public services

Current spending on public services will grow by an average of 0.7 per cent in real terms between 2011-12 and 2013-14.

The government’s short-term focus is on supporting employment and jobs through the downturn, while doing more to prepare Britain for the economic recovery. Budget 2009 announced:

• additional funding for Jobcentre Plus to help move people back into work
• that the guarantee of a place in education and training to every 16 and 17 year old who wants one will be met in full - an extra 54,500 student places in the next academic year
• a further £500 million of additional spending as part of an overall £1.4 billion package to boost Britain's low-carbon sectors, including measures to support energy efficiency and support low-carbon industries and green manufacturing
• a £600 million package to increase housing supply
• a new £750 million Strategic Investment Fund to support advanced industrial projects of strategic importance
  

Banking and financial markets

Financial markets are critical to the well-being of all citizens and the success of all businesses in this country. They also strongly influence economic growth and development across the world.

The government took action to support the stability of the financial system and wider economy through:

• targeted action for individual banks and building societies, such as Northern Rock and Bradford & Bingley; and
• a comprehensive system-wide response, including action to ensure liquidity, strengthen bank capital, guarantee certain wholesale funding, deal with impaired assets, and increase lending in the economy

Budget 2009 introduced the government’s view of action required to renew financial markets for the future, including:

• key elements of the government’s approach to the future of the financial markets
• renewing financial regulation, reducing the impact of bank failure, protecting and supporting consumers, improving the way capital markets work, and strengthening regulators and the international regulatory framework