By Robert Hutton – Aug 16, 2010 11:16 AM GMT
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Alan Budd, who stepped down as chairman of the Office for Budget Responsibility last week, said there is a risk that Britain slides back into recession.

“Our fan charts show it is a possibility,” Budd said in an interview with BBC Radio 4’s “Today” show. “It’s not to me the most likely outcome — the most likely outcome is that the economy will continue to grow — but one can’t rule anything out.”

Proposed budget cuts to rein in the record deficit have cast doubt over the prospects for the U.K. economy, which emerged from its worst post-World War II recession in the fourth quarter. While growth accelerated sharply between April and June, surveys suggest the pace of expansion cooled in July amid concern about the scale of the fiscal tightening being planned.

Budd urged caution after figures last week showed the U.K. economy added more workers in the second quarter than in any comparable period since 1989. The 184,000 increase took employment to 29 million, a level the OBR had not expected to be reached until the end of 2012.

“So more than two years ahead of target we’re already reaching much higher levels of employment,” he said. “So far so good, but these are early days.”

The OBR, which was set up to provide independent forecasts for the Treasury, trimmed its 2011 growth prediction in June to 2.3 percent from 2.6 percent after Chancellor of the Exchequer George Osborne outlined plans to accelerate the pace of deficit reduction. It expects the economy to expand 1.2 percent this year.

With fiscal curbs weighing on consumer spending, “the speedy growth of demand will come from the trade sector, the export sector and from investment and that will bring the jobs with it,” Budd said.