Deficit warning: 'UK growth will fail to hit forecasts'

Economic forecasters have cast doubt on the Government's spending cuts by warning that the deficit will not shrink as quickly as hoped.

The National Institute of Economic and Social Research said growth would be slower than assumed, leading to lower income from taxes and holding back efforts to rein in Britain's debt.

NIESR predicted that the fiscal deficit will fall to 3.6% of gross domestic product in 2014/15 rather than the 2.1% forecasted by the independent Office for Budget Responsibility.

It also said the Government may struggle to go through with the cuts at the pace and scale implied in its emergency Budget.

It said that if this were the case, the Government should meet the shortfall by raising direct taxes.

"If the cuts were half the size and direct taxes were raised to fill the gap, then output growth would be 0.25% higher in 2011 and 2012," said NIESR.

The group has revised down its growth forecasts for next year and 2012 in the face of the Government spending review.

It believes the UK will record GDP of 1.6% in each year, down from predictions for 1.7% in 2011 and 1.8% in 2012.

The group said there remained a one in five chance that output would fall in 2011 as a whole.