Osborne briefed the Cabinet minutes after being given a preview of official figures for gross domestic product in the first quarter of 2011, the FT reports.
The UK economy contracted 0.5% in the fourth quarter of last year, a dip the Office for National Statistics blamed on the snow.
Osborne had hoped for a healthy rebound in the first quarter and the Budget pencilled in expansion of 0.8%. Economists are expecting in the region of 0.5% growth for the quarter.
Stuart Thomson, chief economist at Ignis, said he is predicting below-trend economic growth as the UK struggles to recovery from reduced output and a higher tax burden.
“We are certain, whatever, the outcome, that we are expecting below-trend growth. To catch up with trend, we would have to see growth of 1.7%, and clearly we will not see that level of quarterly growth, or even the 1% pencilled in in the Bank of England’s quarterly inflation report.
“The range is 0.3% to 0.8%, but we think it will be closer to 0.5%, based on the numbers that have come in so far,” he said.
Thomson added the construction sector, which comprises 6% of the UK economy, has been weaker than expected, which may contribute to a disappointing growth figure.
He believes growth would have to come in above 1% to force the Bank to look to hike interest rates sooner rather than later. “We do not think rates will or should be hiked until February, and then it will not be a series of hikes, it will be one or two.”
The Office for Budget Responsibility has forecast GDP growth for the whole of 2011 of 1.7%, revised down from 2.1%.
