Enlarge imageBy Sumeet Desai
LONDON (Reuters) - Chancellor Alistair Darling cut growth forecasts and ramped up borrowing on Wednesday as the economy faces its biggest challenge in over a decade and his government slides in the polls.
In his first budget, Darling pointed to the global credit crisis as he lowered expected UK economic growth for this year to a range of 1.75-2.25 percent and for next year to 2.25-2.75 percent.
"We have seen significant disruption across many credit markets with a number of them barely functioning at all. And since the turn of the year, global stock markets have also been affected," the 54-year-old Scot told parliament.
"This poses a major risk to the world economy. And so we welcome yesterday’s commitment by the world’s central banks including, the Bank of England to address these concerns."
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Top central banks agreed on Tuesday to pump hundreds of billions of dollars into jammed up money markets, labouring under a global credit crunch, to free them up.
In October’s pre-budget report, Darling forecast growth at 2.0-2.5 percent in 2008 and 2.5-3.0 percent in 2009.
In contrast, a Reuters poll of around 60 economists put economic growth at 1.8 percent in 2008, picking up only slightly to 1.9 percent in 2009.
Darling said government borrowing would hit 43 billion pounds in the coming financial year and 38 billion the year after, well above the public sector net borrowing of 36 billion pounds and 31 billion that he forecast in October.
In the job since last June, Darling has had a tough time dealing with the credit crisis and Britain’s first bank run in more than a century, which resulted in the government having to nationalise the country’s fifth-biggest mortgage lender.
Business has also reacted angrily to his plans for capital gains tax reform and imposing a levy on rich foreigners living in Britain. The Labour Party is now trailing in the opinion polls.
But worsening public finances mean Darling’s hands are tied on offering much in the way of sweeteners to an electorate growing disenchanted with his and Prime Minister Gordon Brown’s economic stewardship.
STRUGGLING GOVERNMENT
After initially riding high after succeeding Tony Blair last year, opinion polls have turned sour on Brown and he now lags the Conservatives by a significant margin.
Analysts say any government in power for 11 years, a mark the Labour party is approaching, faces a struggle to secure re-election.
Brown, having shied away from an early election last year, is not expected to go to the polls until 2009 or even 2010.
With money so tight, few analysts predicted any substantive measures in this budget as the cuts in corporation tax and income tax to come into effect in April were already announced by Brown, when he was finance minister, last year.
Treasury officials have told Reuters the budget will have a "strong green theme".
He delayed a planned rise in fuel duty following intense pressure to scrap the increase after soaring oil prices sent the cost of petrol sharply higher.
Fuel duty had been scheduled to go up by 2 pence per litre in April. The rise will now be delayed until October.
Darling is considering slapping on extra duty and a showroom tax of some 1,000 pounds on gas-guzzling cars, according to one government source.
He will set out a timetable warning retailers that they will be forced to charge for plastic bags unless they slash the number handed out to shoppers.
The government is also considering using powers to bring down electricity and gas prices for poorer households with pre-paid meters, according to a government source.
(Writing by Mike Peacock, editing by David Christian-Edwards)
