Budd Says U.K. Economy Faces the `Possibility' of a Double-Dip Recession

Alan Budd, who stepped down as chairman of the Office for Budget Responsibility last week, said there is a risk that Britain slides back into recession.

“Our fan charts show it is a possibility,” Budd said in an interview with BBC Radio 4’s “Today” show. “It’s not to me the most likely outcome -- the most likely outcome is that the economy will continue to grow -- but one can’t rule anything out.”

Planned budget cuts to bring down the record deficit have cast a shadow over the prospects for the U.K. economy, which emerged from its worst post-World War II recession in the fourth quarter. Recent surveys suggest the pace of growth is cooling and a YouGov Plc survey today found that 55 percent of voters think a renewed economic slump is likely in the next 12 months.

Budd urged caution after figures last week showed the U.K. economy added more workers in the second quarter than in any comparable period since 1989. The 184,000 increase took employment to 29 million, a level the OBR had not expected to be achieved until the end of 2012.

“So more than two years ahead of target we’re already reaching much higher levels of employment,” he said. “So far so good, but these are early days.”

The OBR, which was set up to provide independent forecasts for the Treasury, trimmed its 2011 growth projection in June to 2.3 percent and predicted thousands of additional public-sector job losses after Chancellor of the Exchequer George Osborne outlined plans to accelerate the pace of deficit reduction.

‘Huge, Huge Scale’

The Bank of England last week said growth will be weaker than it forecast in May, citing “continuing fiscal consolidation and the persistence of tight credit conditions.”

Deputy Prime Minister Nick Clegg today warned of the pain to come as Osborne prepares to announce budgets for each department on Oct. 20. Most are facing reductions of 25 percent on average in the tightest squeeze for more than six decades.

“We’ve taken some very difficult and painful decisions to try and restore some sense into our public finances,” Clegg said in a question-and-answer session in central London. “You can’t create growth, you can’t create a fair economy on the sands of debt. The job of filling this huge black hole in the public finances, you can’t duck it. It’s on a huge, huge scale.”

The coalition government, which marks its 100th day in office this week, plans to all but eliminate a budget deficit of 11 percent of gross domestic product over the next five years.

YouGov found that a third of those surveyed said they thought a double-dip recession is “unlikely,” the pollster said in a report posted on its website. YouGov interviewed 2,000 adults between Aug. 11 and Aug. 12. No Margin of error was given.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net

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