The coalition government’s new Office for Budget Responsibility (OBR) has today downgraded the UK’s economic growth forecast.

Its report, which was published today, sets the scene for next Tuesday's (June 22) emergency budget.

The OBR said the forecast of 3.25% growth in 2011 was over-optimistic.

Instead, it believes the economy will grow by just 2.6%.

It is expected that next week the chancellor, George Osborne, will outline his plans for tax changes to help address the country's massive budget deficit, which he has indicated will be reduced by a combination of public sector spending cuts and higher taxes.

Some spending cuts have already been indicated, although many will not be announced until the Spending Review concludes in the autumn.

Therefore next week's budget is likely to focus on the tax system.

Changes to Inheritance Tax, Capital Gains Tax, Corporation Tax and VAT have all been muted.

There are plans to simplify the tax system and reduce corporation tax, but there is also continued uncertainty over whether the lower rate paid by small firms will be reduced alongside the higher rate and whether capital allowances will be curbed to pay for the cut.

The SMMT has called for a range of measures to protect the motor industry as it continues to move into one of the most challenging periods in years.