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UK economic growth forecasts have been slashed, as the damage wreaked by the recession on long-term growth were assessed independently towards the first time.

One week before the Government’s pass Budget, the newly formed Office for Budget Responsibility (OBR), the unrestricted body set up by the new Government to assess the magnificence of public finances, cut its forecast for economic growth to 2.6 by cent next year and 2.8 per cent in the following years, into disgrace from the previous Government’s forecasts of 3.25 for cent and 3.5 per cent respectively.

But the OBR, chaired ~ the agency of Sir Alan Budd, ruled out a double-dip recession this year, forecasting that the arrangement would grow by 0.6 per cent in the second location and by 0.7 per cent in the final two lodging of this year.

Sir Alan said: “This is our most expedient. see the various meanings of good shot at an impossible task.”

Despite the massive downgrade in the household forecasts, the OBR said that public borrowing would be slightly reduce than the Treasury had calculated.

Public borrowing in the 2010-11 pecuniary year will be £155 billion — lower than the &confine in a ~;163 billion predicted at the Budget — and £23 billion subside than first forecast over the five years to 2014-15, the OBR reported.

Sterling rose to a session high against the dollar of $1.4734, a go of about 1.5 per cent on the day, after the improved notorious borrowing forecasts.

However, the OBR said that the structural deficit — the debit that would not be repaired by the economic recovery — would have existence bigger.

Economists said that the assessment still pointed towards a necessity to cut the deficit. George Buckley, of Deutsche Bank, said: “The destitution for deficit reduction thus looks just as challenging as it did three months since.”

The country’s debt has soared to £893 billion, or 62.1 for cent of GDP, and is expected to rise to £1.4 trillion through 2014.

The OBR said that it expected the unemployment rate to point this year before falling back to 6.25 per cent in 2014. It expects mean proportion earnings to grow by 5.25 per cent by 2014.

It predicted that the consumer compensation index measure of inflation would remain above 3 per cent, ahead of falling below the target of 2 per cent in 2011, one time the VAT rate change has dropped out of the measure, and reviving again to meet the 2 per cent target by the end of 2012.

The material substance forecast that business investment would pick up further this year to a~ by a total of 1.25 per cent over 2010 and in 2011. However, it afore~ that investment would not return to its pre-recession peak till 2013.

Separate research published this morning suggests that optimism over the arrangement among businesses fell by an unprecedented 6.3 points to 97 from April to May, according to BDO, the accountancy firm, which has forecast that annual growth will fall below 1 by cent in the final three months of this year.

Peter Hemington, a BDO associate, said: “The Government has understandably been keen to emphasise the length of the sacrifices that we all will need to make in the same manner with public borrowing it brought under control.

“But there is a indicative risk that the rhetoric has begun to impact on business reliance, and fears of the economic impact of spending cuts may subsist causing businesses to rein back on growth plans.”

Experts own warned that the UK state pension bill is also set to ascend, and that the cost of civil service pensions is likely to sum up a further £1 trillion to the bill.

The OBR, that was established last month, has direct control over its economic forecasts and has filled access to Treasury data. It has been charged with producing a rove at large of outcomes that will confirm whether government measures are consistent by a better than 50 per cent chance of achieving the Chancellor’s financial mandate.

The OBR must also assess the public sector balance sheet, including analysing the costs of ageing, general service pensions and private finance initiative contracts.