UK budget cuts may have major repercussions

The Northern Ireland Assembly could face a public spending dilemma if the Chancellor of the Exchequer, Mr Gordon Brown, reduces his public expenditure programme in today's pre-budget report.

MrBrown has hinted that growth in the UK is likely to be less than Treasury forecasts. Business analysts believe this could result in the Chancellor tightening the belt on public expenditure and financial support for industry.

Mr Philip McDonagh, chief economist with PricewaterhouseCoopers in Belfast, is warning that the Assembly is already facing conflicting demands to fund infrastructure deficits in essential services.

"The financial pressures on the Assembly to fund the needs of education, health, economic development and regional development are acute.

"The most welcome news for Northern Ireland today would be if the Chancellor offered private sector incentives targeted to regional needs, while providing the public sector with incentives to stimulate new ways to tackle historic infrastructure defects and the demands of a growing population," Mr McDonagh said.

Northern Ireland has an over-inflated public sector compared to the rest of the UK - more than 55 per cent of gross domestic product in the North comes from the public sector compared to around 40 per cent in the rest of the UK.

According to Mr McDonagh, the private sector in Northern Ireland is coming under increasing pressure because of the current downturn in world markets.

Exports have fallen, while new inward investment has declined.

The latest unemployment figures show a rise of 2,000 in the number of people seeking work in the North last month.

Business analysts at PricewaterhouseCoopers believe that the slowdown in GDP growth in the UK combined with the fallout from the current uncertain economic climate could increase the public sector borrowing requirement.

"This time around, the Chancellor is unlikely to have the same flexibility to stimulate the regional economies through public expenditure," Mr McDonagh said.