In his budget on Wednesday, the Chancellor reminded us that we are in the grip of a global economic recession, the like of which we have not seen since World War Two. This scene setting paved the way for a series of announcements on lending and growth projections that brought loud gasps from the opposition benches.

The Chancellor announced that this year’s public sector borrowing requirement (PSBR) would hit £175bn. The PSBR for 2010/11 will remain similar at £173bn before reducing to £140bn, £118bn and £97bn in the following years.

National debt as a percentage of gross domestic product (GDP) will rise steadily from 59% this year to a peak of 79% in 2013/14 before stabilising and beginning to fall in 2015/16. Some of this borrowing will be funded by closing tax loopholes and public sector efficiency savings.

The Chancellor told us he expects the UK economy to contract by 3.5% in this financial year, although he expects growth to return towards the end of the year. He forecast growth next year to be 1.25%, with growth of 3.5% from 2011 onwards. The Government cites experience from previous recessions as a pointer to post-recession recovery but it remains to be seen whether these projections are overly optimistic.

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