Comment & Analysis

Thursday April 16, 07:03 PM
UPDATE 2-UK budget to focus on families, businesses

By Frank Prenesti LONDON, April 16 (Reuters) - Policies aimed at helping families and businesses through the recession will be the priority of next week's budget, British finance minister Alistair Darling told Cabinet ministers on Thursday.

'The chancellor (Darling) made clear we would not make the mistakes of the previous recession and allow a short-term increase in unemployment to become permanent,' a spokesman for Prime Minister Gordon Brown's office said in a statement.

The budget, to be delivered by Darling on April 22, is shaping up to be one of the most gloomy in decades given the economic slump and soaring public debt.

Optimism in last November's pre-budget report about the depth of the recession has evaporated as it becomes clear the forecast of a summer recovery was well wide of the mark.

The longer the recession lasts, the more it harms Brown's political prospects, given he must call an election by mid-2010, is trailing the opposition Conservatives in the polls and needs an upturn to boost his fortunes.

British monthly unemployment figures are due to be released only hours before Darling stands up in parliament to make his address, one of the big political set-piece events of the year.

Unemployment recently rose to more than two million, the highest level since shortly after Labour took power in 1997.

Alongside that, borrowing figures for the 2008/09 fiscal year are expected to show the worst outturn since World War Two.

KING'S WARNING

Darling will also be forced to take an axe to his economic forecasts next week and admit the economy looks set for its deepest downturn for more than six decades.

In his pre-Budget update last November, Darling forecast the economy would contract by around 1 percent this year, a far cry from the 2 percent growth he initially envisaged. Despite a raft of stimulus measures, even this looks unrealistic and Darling is likely to admit the downturn will be three times sharper.

Darling has limited room to move on any stimulus to boost the economy given the pace at which the economy has shrunk since November.

Bank of England Governor Mervyn King sounded a warning last month when he said the government will want to be cautious about expanding the budget deficit any further, which analysts say could soon top 10 percent of GDP.

Darling announced a 20 billion pound package in November and the BoE has cut interest rates to a record low of 0.5 percent and has pledged to create an extra 75 billion pounds through quantitative easing to boost credit flows.

(Reporting by Frank Prenesti; Editing by Victoria Main) Keywords: BRITAIN BUDGET/CABINET (London newsdesk +44 207 542 7947)

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