The outlook for the economy is "inherently uncertain" and recovery will be slower than after previous recessions, the UK's tax and spending watchdog has warned.

The Office for Budget Responsibility (OBR) said the impact of Government deficit-busting measures - which include a hike in VAT to 20 per cent and an £81 billion package of spending cuts - would lead to "sluggish growth" in the medium term.

But the OBR - formed in May to make an independent assessment of public finances and the economy - did slash its projections for public sector job cuts over the next four years from 490,000 to 330,000.

The watchdog's forecast - which will provide the fiscal framework for the Government's next budget in March - raised estimates for GDP growth in 2010 from 1.2 per cent to 1.8 per cent, but lowered growth in 2011 and 2012 from 2.3 per cent to 2.1 per cent and from 2.8 per cent to 2.6 per cent respectively.