U.K. Says Job Losses in Public Sector Will Worsen

LONDON—The Office for Budget Responsibility released numbers Tuesday suggesting last month's emergency budget would result in much greater public-sector job losses than originally reported.

The move came after days of controversy over whether the fiscal council, which is supposed to be politically neutral, had tarnished its independence by releasing a previous assessment of public-sector job losses that suggested the impact of the new government's austerity measures would be much smaller.

The new assessment of public-sector job losses is a blow for the government, which had leapt on the OBR's previous figures to suggest the impact of its austerity measures would

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U.K. Prime Minister David Cameron’s planned budget cuts increases the chance the economy will slip back into recession, said Geoffrey Dicks, who heads economic forecasting at Britain’s new fiscal watchdog.

Responding to questions during a parliamentary hearing in London today, Dicks said measures proposed in the June 22 budget led his office to shave 0.5 percentage points from its growth forecast in the “near term.” His Office for Budget Responsibility predicts an expansion of 1.2 percent in 2010.

“There are some budget measures which will have reduced demand,” Dicks told the Treasury Committee, which scrutinizes economic policy. “The near-term outlook for GDP is not as good as it was before the budget. I still don’t think that will mean a double dip, but logically the chances of that happening have increased.”

The U.K. economy grew 0.3 percent in the first quarter. The Bank of England kept its bond-purchase plan in place and left its benchmark interest rate at a record low last week to aid the recovery as the government implements the biggest budget squeeze since World War II and growth in the euro region slows.

Last month’s budget outlined proposals to cut spending and raise taxes by as much as 40 billion pounds ($60 billion) a year. Together with plans set out by Labour Party predecessors, the measures will suck 113 billion pounds out of the economy by 2015. Chancellor of the Exchequer George Osborne is due to spell out budgets for individual departments in the fall.