Darling cuts growth as borrowing is set to soar

In his first Budget since succeeding Gordon Brown as Chancellor, Darling said growth will slow from 3% last year to 2% this year and 2.5% in 2009.

He also admitted the resulting shortfall in tax receipts means he will borrow £20 billion more than planned just five months ago to fund Government spending over the next four years, including £43 billion next year, up from £36 billion.

The outlook was gloomier than in the Pre-Budget Report (PBR) in October and was greeted by Opposition jeers.

City economists warned the Chancellor had not gone far enough. They reckon gross domestic product will grow by just 1.8% this year and 2% next year.

"The Chancellor's forecasts are still too optimistic," said Professor Peter Spencer, chief economic adviser to the Ernst & Young Item Club, who described the state of the public finances Brown left Darling as "simply dreadful".

Spencer warned next year could be worse than this year "because of the increasing momentum, not behind growth, but behind the problems in the credit markets".

Philip Shaw of Investec said: "If the downside risks to growth are realised, the public finances could be left deeply in the red for some time."

The economy is faltering in the face of the global credit squeeze, looming recession in the US, a downturn in the housing market, and weak consumer spending as confidence evaporates.

Darling said: "Turbulence in global financial markets - which started in the American mortgage market - has affected all economies from the United States to Asia, as well as Europe.

"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. This poses a major risk to the world economy."

But he added that the "UK economy will continue to grow throughout this period of global uncertainty" and will be stronger than in America, Japan and the eurozone.

Darling cut growth forecasts for this year from 2%-2.5% to 1.75%-2.25%. He cut next year's forecast from 2.5%-3% to between 2.25% and 2.75%.

The Chancellor admitted borrowing will hit £43 billion next year, up from the £36 billion outlined in October's PBR.

Total borrowing over the next four years will be £140 billion - £20 billion more than expected five months ago and £32 billion more than Brown forecast in his final Budget in March 2007.