A new fiscal watchdog has set the scene for the emergency Budget by revealing that Labour’s last growth estimates were too optimistic.

The Office for Budget Responsibility (OBR) is forecasting growth of 2.6% in 2011, below the 3.25% predicted in March’s Budget.

The OBR’s figures, which do not include the impact of measures introduced by the coalition Government, set the scene for Chancellor George Osborne’s emergency Budget next week.

The Conservative-Lib Dem coalition government has pledged to cut public spending to reduce the deficit.

The OBR predicts borrowing of £155 billion in the current financial year – below the £163 billion forecast in the Budget – with total net borrowing over the next five years £23 billion lower than expected in March.