Britain’s government budget deficit may rise by £32 billion more than the level forecast in November as the recession deepens, the Institute for Fiscal Studies said.
The shortfall of £150 billion would amount to 10.4 per cent of gross domestic product in the fiscal year through March 2010 and force Chancellor of the Exchequer Alistair Darling to consider tax increases and spending cuts after the next election, the IFS said.
"The recession is now expected to be deeper and longer than the Treasury anticipate, according to the IFS, a research group that counts the Treasury and Bank of England among its clients.
That will "depress tax revenues and increase welfare bills" and will "require an additional fiscal tightening" once growth rebounds.
Deteriorating finances limit British Prime Minister Gordon Brown's ability to stimulate the economy with spending or tax cuts before the middle of 2010, the deadline for the government to call a vote.
Mr Darling, who delivers his annual budget on April 22nd, has acknowledged the recession is worse than he expected.
"There is no doubt the depth of this recession, here and across the world, is far greater than people were predicting last year," Mr Darling said yesterday on the BBC.
The economy will shrink 2.8 per cent this year, the biggest contraction among the Group of Seven nations, according to the International Monetary Fund. That compares with declines of 2.6 per cent in Japan, 2 per cent in the euro area, 1.6 per cent in the U.S. and 1.2 per cent in Canada.
Reuters