Britain will overshoot its projected budget deficit this year by about 80 per cent, the government admitted yesterday.

Mr Gordon Brown, the Chancellor of the Exchequer, in charge of public finances, told parliament the shortfall for the financial year to next April would reach 1.9 per cent of gross domestic product, instead of the 1.1 per cent forecast earlier in the year. He also forecast that the gap would widen to 2.2 per cent next year but said the extra borrowing was affordable and would stay within the government's criteria for fiscal discipline.

The growing deficit reflected slower growth, expected to be 1.6 per cent this year compared with Mr Brown's earlier prediction that it would continue at between 2 and 2.5 per cent.

Mr Brown insisted that the UK would stay well within the budget and debt requirements set in the Maastricht monetary union treaty. However, private-sector economists reckon lower tax revenues could push the deficit higher than Mr Brown's forecast, forcing him to stretch his own rules for fiscal discipline. These allow for borrowing for government investment but not for covering current spending over the length of an economic cycle. Mr Brown, however, insisted that he would comply with his rules.

The relative flexibility of the UK guidelines is widely seen as providing a model for changes to the euro zone's rigid budgetary framework and is drawn on in the European Commission's latest proposals.

Mr Brown pledged to uphold plans for sharply higher spending on public services, the main plank of the government's election platform last year.

With the Labour government's future pinned to improving standards in healthcare and other key services, the strain on public finances is the biggest test faced by Mr Brown, who has enjoyed the most solid reputation of any of Mr Tony Blair's ministers.

In his pre-budget report, a prelude to the main annual budget in March, he rejected the idea of cutting back on spending and borrowing, which he said would jeopardise stability and "lead directly to depressed demand, rising unemployment and the old boom-and-bust approach".

He also steered away from suggesting further tax increases, with extra social security charges already due to come into force in April to help pay for investment in state healthcare.

He put a positive gloss on the UK's recent economic performance, saying growth should recover to up to 3 per cent next year, enabling Britain, alongside the US, to continue outperforming other leading economies. He also expressed confidence that the UK would keep to its 2.5 per cent annual inflation target, reducing the figure slightly next year.

In a clear warning to striking fire crews, he said the government would hold firm against "inflationary and unaffordable pay settlements". The firefighters said they would start exploratory talks tomorrow to avert a further eight-day strike from Wednesday.

Mr Brown sought to offset the reduced growth outlook with promises of more tax breaks for families, cash for training and help for small companies.