Sunday, April 19, 2009

Bleak annual budget

Economists believe that Mr Darling could tip a contraction in gross domestic product of as much as 3 percent this year. -- PHOTO: REUTERS

LONDON - BRITISH Treasury chief Alistair Darling is likely to present a bleak annual budget next week with little good news for the average Briton as the economy wallows in recession.

Along with a hefty downgrade to the country's growth forecasts, Mr Darling is expected to unveil deferred tax increases and lower spending to deal with a blowout in public finances caused by the government's recent attempts to stimulate the struggling economy.

There might be some help for savers, whose piggy banks have been devalued by the lowering of central bank interest rates in recent months to a mere 0.5 per cent, and people trying to buy their first home may also see some advantages.

But measures to support credit-strapped businesses, to provide further economic stimulus and to follow through on promises made by Prime Minister Gordon Brown at the recent meeting of G-20 leaders - including a crack down on tax havens - will all come at a cost.

'Darling faces the unenviable task in his second budget of trying to offer the economy some much-needed support, whilst at the same time reassuring the markets that the public finances will eventually return to health,' said Mr Roger Bootle, economic adviser to Deloitte. 'He is unlikely to achieve either aim convincingly.'

Mr Darling is required to make a new economic forecast in next Wednesday's budget and has already prepared the ground for a lower prediction with a recent admission that Treasury had underestimated the depth of the recession.

The British banking sector was one of the first casualties of the global credit crunch and the economy has already plunged into its first recession - defined as two consecutive quarters of negative growth - in around two decades.

Economists believe that Mr Darling could tip a contraction in gross domestic product of as much as 3 percent this year.

That would be a significant worsening from his forecast in November's pre-Budget report of a slowdown of between 0.75 per cent to 1.25 per cent - itself a far cry from the two per cent growth he originally predicted.

Even a three per cent fall is optimistic compared to forecasts by the International Monetary Fund and the Organisation for Economic Cooperation and Development of 3.8 per cent and 3.7 per cent, respectively. -- AP

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