Professor David Bailey considers the hopes for growth in the aftermath of George Osborne’s Autumn Statement

In June last year, just after the election and before the Chancellor’s ‘emergency’ Budget, government borrowing in 2014-15 was forecast to be £70 billion.

The Chancellor’s plan was to reduce that borrowing to £37 billion and to eliminate the structural deficit – that bit of the deficit which doesn’t go away after a recession – over the lifetime of this parliament.

But the Office for Budget Responsibility (OBR) now forecasts that borrowing in 2014-15 will still be £79 billion, while the structural deficit won’t be eliminated until the next parliament.

George Osborne is missing his own targets and this week’s Autumn Statement was pretty much an exercise in damage limitation. And while I waited for the rabbit to be pulled out of the hat, it never appeared.

In delivering his statement, Osborne did his best to blame the UK’s economic woes on everyone else. But ultimately he had to admit that the UK economy risks slipping back into recession if the eurozone does, and that it will anyway hardly grow at all next year. That’s how bad things have got.

Stressing that the challenge of cutting Britain’s deficit was greater than he had previously been thought, he again targeted public sector workers – some of whom took strike action this week – by saying that more public spending savings would be made by “further restraint” in public sector pay, with the latter rising by just one per cent for the two years after the current pay freeze is over.

The economic news was unremittingly gloomy, with the Chancellor stating that the UK economy would grow by just 0.7 per cent next year, down from the 2.5 per cent forecast previously made by the supposedly independent OBR.

That 0.7 per cent figure was anyway based on the assumption the eurozone finds a solution to its crisis and avoids recession. If it doesn’t, Osborne noted, then we’re all going down.

As predicted, the OBR also slashed its forecasts for growth this year, downgrading them to a paltry 0.9 per cent, down from a previous forecast of 1.7 per cent made in March. Actually, those OBR forecasts still look pretty over-optimistic to me.

On Monday this week, the Organisation for Economic Co-operation and Development (OECD) said that the UK was sliding back into double-dip recession this quarter and next, and would grow by just 0.5 per cent next year. That would put an even bigger dent in Osborne’s deficit reduction plans.

Leaving that aside, the Government is still expected to borrow an additional £111 billion, or around seven per cent of GDP, over the next five years. Moreover, a sizeable chunk of that extra borrowing is now seen as reflecting permanent damage to the economy and is thus classed as “structural” rather than “cyclical”.

In fact, all of the forecasts we heard this week pretty much confirmed what many of us have been saying for some time, which is that a very sharp tightening of fiscal policy in the context of strong economic headwinds would weigh heavily on growth and employment, in turn actually making it harder for the Government to meet its own fiscal targets. And so it is turning out.

The whole narrative created by Osborne – that the fiscal retrenchment was needed to avert a Greek-style bond market strike – was a fiction.

If he’d been right, the bond markets would now be panicking as we are now borrowing more.