British budget deficit forecast likely to be raised

CHANCELLOR Gordon Brown is likely to raise his forecast for the British budget deficit in next week’s pre-budget report, economists say.

Mr Brown will need to raise expected borrowing requirements for the next two fiscal years due to recent trends, they predict.

But the treasury's report is not expected to contain any new major tax or spending initiatives.

Mr Brown is also unlikely to have to revise estimates of growth in gross domestic product (GDP). GDP is expected to be on course to meet the treasury's forecast ranges set in April's budget for both this year and next year, experts say.

Figures released last month for the public finances showed net borrowing for the current financial year to date at £21.1 billion, £10.4 billion higher than the £10.7 billion in the same period last year.

The treasury's own target for the year, set in this year's budget, is for £27 billion after it forecast only a £3 billion worsening for the year as a whole. Senior economist at stockbroker Merrill Lynch, Mike Taylor, said he expected the chancellor to increase his public sector net borrowing forecast for 2003/04 to around £33 billion about 3% of GDP.

The figures have led some economists to forecast that Mr Brown may have to raise income taxes to compensate for increased government spending.

But Philip Shaw, of investment bank Investec, said fears of major tax increases are likely to be misplaced due to the growing economic revival. "With the British economy recovering, we feel the public finances will turn around during the next year," he said.

John Butler of HSBC said he expected little revision to the treasury growth estimates.

But HSBC was anticipating an admission that the public sector borrowing requirement is likely to widen by about £5.5 billion £6 billion more than had been envisaged for the full year 2003/'04.

"Economic growth has been in line with the chancellor's budget projection, but the government deficit continues to undershoot," said Mr Butler.