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Fresh blow for Osborne as UK growth downgraded

The Chancellor's economic strategy under increased pressure .

George Osborne's economic strategy has been dealt a fresh blow after forecasting group, the Ernst & Young Item Club, claims that the UK economy has "stalled at a dangerous junction".

With unemployment peaking at 17 year high in August, Item's chief economic advisor Peter Spencer argues that the government needs to take proactive measures to protect jobs, including floating the idea of a reduction in national insurance contributions from younger workers.

Spencer said:

The unemployment figures really put the kibosh on the idea that the private sector will take up the slack from public-sector job losses . . The economy has stalled at a dangerous junction and we need new measures to put growth back on track.

Citing fears surrounding the eurozone debt crisis, the UKs growth prospects have been downgraded to 0.9 per cent this year, a 0.5 per cent drop than was forecast only three months ago. "It's worse than we thought. The bright spots in our forecast three months ago -- business investment and exports - have dimmed to a flicker," he said.

Despite posturing that there will be no variation in the government's hard-line deficit reduction strategy, the Chancellor will face renewed pressure to come up with new ideas to kick-start the ailing economy. The group suggests that lower debt-interest payments could enable the UK economy the flexibility it needs to renew its ever-faltering growth prospects.