Britain braces for key budget update

British finance minister George Osborne unveils his budget update on Wednesday, and will likely admit it could take longer than expected to slash the deficit as a result of the weaker-than-expected economy.

British finance minister George Osborne, pictured during a visit to the offices of the revenue and customs HMRC, in Westminster, central London, on December 3. Osborne is to deliver his Autumn Statement before parliament on December 5, alongside the latest growth and borrowing forecasts from Britain's Office for Budget Responsibility (OBR) fiscal watchdog.

Chancellor of the Exchequer Osborne was to deliver his Autumn Statement before parliament at 1230 GMT, when the Office for Budget Responsibility (OBR) fiscal watchdog will also publish its latest growth and borrowing forecasts.

Osborne has already warned that economic recovery will take longer than hoped but insisted that abandoning the government's tough deficit-slashing austerity measures would be catastrophic amid the ongoing eurozone debt crisis.

"We had two targets, one was to get debt share falling as a share of national income by 2015/16 and also to balance the current budget," the chancellor told BBC television over the weekend.

"It's clearly taking longer to deal with Britain's debts; it's clearly taking longer to recover from the financial crisis than anyone would have hoped but we have made real progress."

Ahead of the budget update, Osborne pledged Tuesday to invest pound sterling5.0 billion in schools, transport and science over the next two fiscal years, with the cash sourced from a new raft of spending cuts across most civil service departments.

And on Monday, Osborne launched a campaign against "tax dodgers" and "cowboy advisers" to claw back pound sterling2.0 billion a year, as lawmakers alleged that multinationals such as Starbucks and Google are avoiding huge tax bills.

The OBR was meanwhile expected to lower its gross domestic product (GDP) forecasts as the economy faces major headwinds from state austerity, inflationary pressures and the eurozone's ongoing crisis.

Osborne had in March forecast that the British economy would grow by 0.8 percent this year, followed by 2.0 percent in 2013 and 2.7 percent in 2014.

Weaker economic growth would slash taxation receipts and spark upward revisions to its official borrowing targets, according to analysts.

Alongside Osborne's budget in March, the OBR predicted that public sector net borrowing (PSNB) as a proportion of economic output would begin to fall in 2015/2016, after peaking at 76.3 percent of GDP in 2014/15.

And it forecast state borrowing would reach pound sterling120 billion ($192 billion, 148 billion euros) in the 2012/2013 financial year ending in March, compared with pound sterling121.4 billion in 2011/2012.

But with PSNB already standing at pound sterling73.3 billion and four months of the financial year to go, Osborne could breach the target.

Recent official data showed Britain had escaped from recession in the third quarter of this year, with its economy growing 1.0 percent.

However, experts argue this was due to one-off factors like the London Olympics and rebounding activity after public holidays in the second quarter.

The Conservative-Liberal Democrat coalition government imposed austerity measures to slash a record deficit inherited from the previous Labour administration. Opposition Labour politicians maintain that the cuts pushed the economy into a painful double-dip recession.

The Organisation for Economic Co-operation and Development urged Osborne last week to push back his debt reduction targets rather than drive through more growth-damaging austerity.

Meanwhile, the country's official statistics watchdog on Tuesday warned the government to stop claiming that real-terms National Health Service spending had increased after calculating funds had actually fallen slightly.

The UK Statistics Authority said Health Secretary Jeremy Hunt should "clarify" claims on the Conservative party website that "we have increased the NHS budget in real terms in each of the last two years".

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Writer: AFP
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