The U.K. economy is set to grow less than expected this year as the sovereign debt crisis in the euro area, the country's main export destination, drags on, the Chancellor of the Exchequer George Osborne said Wednesday.

In the Budget statement presented in Parliament, Osborne said, "It is taking longer than anyone hoped, but we must hold to the right track."

"Another bout of economic storms in the eurozone would hit Britain's economic fortunes hard again," he warned. Forty percent of Britain's exports goes to the Eurozone, the chancellor pointed out.

Citing the forecasts from the Office for Budget Responsibility, Osborne said the growth forecast for this year is cut to 0.6 percent from 1.2 percent in the autumn statement.

The outlook for 2014 was also lowered to 1.8 percent from 2 percent. Meanwhile, growth is seen rising to 2.3 percent in 2015, 2.7 percent in 2016 and 2.8 percent in 2017.

"The problems in Cyprus this week are further evidence that the crisis is not over, and the situation remains very worrying," Osborne noted. Britons sent to Cyprus to serve their country, in military or government, will be protected in full from any tax on their deposits, the chancellor added.

Despite the weaker outlook, the picture on employment "continues to surprise on the upside", Osborne said, citing the OBR. The agency now expects 600,000 more jobs in 2013 and a 60,000 reduction in jobless claims.

On the fiscal front, Osborne said the government has managed to cut deficit by a third. The gap is forecast at 7.4 percent of GDP this year and then, seen falling to 6.8 percent next year. The deficit is seen at 5.9 percent in 2014-15 and 5 percent in 2015-16. The figure is expected fall further to 3.4 percent the year after and reach 2.2 percent by 2017-18.

The deficit figures exclude the transfer of the Royal Mail pension fund to the government which reduces the deficit still further for this year alone, the chancellor noted.

Government borrowing was forecast to fall to GBP 108 billion next year and to GBP 97 billion in 2014-15. It is seen dropping to GBP 87 billion in 2015-16 and again to GBP 61 billion in the following year. The figure is seen at GBP 42 billion in 2017-18.

Public sector net debt is forecast at 75.9 percent of GDP this year, 79.2 per cent next year, and 82.6 per cent the year after. The figure is expected rise in the following two year, but eventually fall to 84.8 percent in 2017-18.

The chancellor also presented an updated remit for the Bank of England's Monetary Policy Committee, which reaffirmed the inflation target as 2 percent as measured by the twelve month increase in the Consumer Prices Index. Low and stable inflation is a necessary but not sufficient condition for prosperity, he said.

"The new remit explicitly tasks the MPC with setting out clearly the trade-offs it has made in deciding how long it will be before inflation returns to target," Osborne said. "The new remit also recognizes that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable."

Henceforth, when inflation is above target, the Bank of England Governor will have to write an open letter to the chancellor on the day the minutes of the next MPC meeting are published. The updated remit also allows the MPC to issue explicit forward guidance, including using intermediate thresholds in order to influence expectations on the future path of interest rates.

The chancellor has asked the MPC to provide an assessment of how intermediate thresholds might work in Britain, and to give that assessment in its August 2013 Inflation Report, which would be the first to be issued under the new Governor Mark Carney. Both, the current BoE Governor Mervyn King and Carney have agreed the new remit, he added.

In other measures, Osborne extended the 1 percent cap on public sector pay for one year to 2015-16. The government will boost infrastructure spending by GBP 3 billion a year from 2015-16, he said. The corporation tax was cut by a percent to 20 percent. The chancellor also abandoned a planned increase in fuel duty for two years.

RTTNews