Economists are broadly positive on measures announced in the emergency Budget and are scrambling to revise their own growth forecasts in light of the austerity measures.
George Osborne forecast slower UK GDP growth in the next five years - 1.2% this year and 2.3% 2011, followed by 2.8% in 2012, 2.9% in 2013 and 2.7% in 2014 and 2015.
The 2.6% forecast for 2011 is down from the 3%-3.5% estimate made in the last Labour Budget three months ago.
Keith Wade, chief economist at Schroders, has reduced his growth forecasts due to the VAT rise.
He initially anticipated 2.4% growth in the UK by the end of the year, but has reduced this to 2.2% because the rise was higher than he expected.
Wade says the hike from 17.5% to 20% was tough, as he had anticipated a smaller increase to 19%.
He will also be adjusting his interest rate forecast. Instead of expecting a rate increase in November 2010, he now believes rates will be held until 2011.
However, John Clarke, CIO at GHC Capital, has raised his forecasts albeit from a lower base than Wade's. Clarke is pleased with how Osborne has handled his first Budget and says he is right to get on with reducing the UK deficit.
He will raise his long-term growth expectations in line with the Chancellor with 2.7% anticipated in 2011 and 2.8% in 2012. However, he is sticking with his low prediction of 0.8% for 2010.
"There will be a rise in consumer spending at the end of this year as a result of the VAT change and a weaker start to 2011."
Clarke adds the key issue for many seems to be whether the measures will increase the risk of a double dip recession, but says fiscal policy is not a key driver of the economy and is used on the supply side, while monetary policy is used on the demand side.
Meanwhile, Ted Scott, director of equity strategy at F&C, is more concerned with how the cuts to the welfare system will affect consumption in the UK.
He said although the main headlines of the Budget, such as the VAT rise, were in line with expectations, he is worried about how the public spending cuts will affect low income earners.
Osborne says benefit payments have increased ahead of inflation over the past 10 years and to slow down this increase he will link the payments to CPI rather than RPI. CPI currently stands at 3.4% while RPI is 5.5% so these decreases will save provide a huge saving to the current £180bn welfare bill.
"This will impact low income earners where there are many more receiving disability allowance or housing benefit. Consumption will also be affected by the VAT rise," says Scott.
"The Chancellor himself has decreased growth forecasts and we are not getting much help from overseas so the growth environment does continue to look negative."
Scott is not expecting a double dip recession but muted, below-trend growth.
"It will be a slow recovery considering how deep the recession was but Osborne has done a good job in addressing the issues."
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Reporting to Steve Hill
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