By Daniel Hunter

Public borrowing is projected to overshoot its target by around £8 billion in the current financial year according to PwC’s latest UK Economic Outlook.

The report also projects the structural current budget deficit falling gradually over time but not eliminated until 2017/18. In this case, public sector net debt might peak at around 82% of GDP in 2016/17.

“Our main scenario is somewhat less optimistic than the latest OBR forecast," John Hawksworth, chief economist at PwC, said. "Our projections show that the Chancellor still faces a very tough challenge in getting the public finances back under control in the medium term and will have little room for manoeuvre in his Budget on 20th March. He should focus what firepower he has on measures to boost infrastructure investment, while also laying the groundwork for longer term supply side reform.”

The report projects GDP growth of around 1% in 2013 as a whole, rising to 2% in 2014. Consumer spending growth of around 1.2% in 2013 and 1.9% in 2014 is expected as the unemployment rate drifts down and inflation gradually falls back.

The report also notes that inward investment to the UK from the BRIC economies (Brazil, Russia, India and China) currently accounts for only just over 3% of the total foreign direct investment stock in the UK, but has been picking up rapidly in recent years. Investment from India has led the way so far, with China following. Banking, energy and automotive manufacturing have been the key areas for investment from China and India, but there is huge additional potential to be tapped from these and other fast-growing emerging economies.

“UK GDP is projected to rise by around 1% in 2013 after increasing by just 0.2% in 2012 as a whole, and we expect a gradual return to trend growth of around 2% in 2014," John Hawksworth, chief economist at PwC, said.

"Growth rates vary by region but should be positive this year in all cases, supported by recent rises in employment in most regions. However, risks from further storms in the eurozone and global commodity price shocks need to be taken into consideration and businesses should make appropriate contingency plans for this.

“On the other hand, prospects for growth beyond Europe now look somewhat more positive for 2013 and 2014 because we expect the emerging market slowdown of 2011-12 to be gradually reversed due to policy easing in those economies.

“Boosting inward investment from fast-growing emerging economies beyond current low levels will be important to supporting long-term growth in the UK. Improving the transport infrastructure, making the most of our world class research universities and maintaining a competitive tax regime will all help to deliver this potential and could provide a focus for the Chancellor’s strategy in the Budget and beyond.

“Overall, the UK economy is likely to see a slow and bumpy recovery over the next two years, with many pitfalls needing to be negotiated on the way.”

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