Britain braces for annual budget

( AFP )- Britain's finance minister Alistair Darling was set Wednesday to deliver his first full-year budget against the backdrop of choppy financial markets and slowing economic growth.

Analysts expect that Darling, who took over as chancellor of the exchequer in June after Gordon Brown became prime minister, will slash his growth forecasts again due to the impact of the global credit crunch.

His tenure at the Treasury has been marked by extremely volatile financial markets, record high oil prices and the global squeeze on credit which sparked the nationalisation of crisis-hit British mortgage lender Northern Rock.

Chancellor Darling will begin his maiden annual statement on taxation and spending before parliament at 1230 GMT on Wednesday.

Economists agree that the weak state of Britain's public finances will not allow for any eye-catching measures to boost the economy, which also faces a faltering housing market, rising inflation and soaring household debt.

"The Chancellor is caught between a rock and a hard place," said Roger Bootle, chief economic adviser to Deloitte.

"The result is that this budget is unlikely to set the world on fire and certainly won't emulate the US government's forthright action to support its beleaguered economy with a major fiscal stimulus," he said.

Darling has meanwhile faced a barrage of criticism from the business community over taxation changes unveiled last October for Capital Gains Tax -- levied on assets sold at a profit -- and for non-domiciled UK residents.

"Whatever the Chancellor does on Wednesday, he cannot afford to make any major policy announcements that subsequently need to be significantly amended," said Global Insight economist Howard Archer.

"The fiascos over Capital Gains Tax and the taxation of non-domiciles, on top of Northern Rock, have significantly damaged the government's reputation for economic competence, as well as Darling's own reputation.

"Any further embarrassments resulting from Wednesday's budget would be extremely hard for the government, and Darling in particular, to live down."

British media reports suggest the chancellor will unveil a windfall tax on domestic energy suppliers alongside environmentally-friendly measures to discourage heavily polluting vehicles.

Darling conceded in October that the economy would face a sharp slowdown in a pre-budget announcement that was overshadowed by Brown's decision not to call an early general election, as was widely expected at the time.

Britain was set for economic growth of 2.0-2.5 percent in 2008, followed by 2.5-3.0 percent in 2009, Darling predicted.

The economy expanded 3.1 percent in 2007. However, it staggered to growth of 0.6 percent in the fourth quarter -- which was the slowest quarterly rate for more than a year.

"In the very short term, growth is set to weaken, which is hardly an auspicious backdrop to a possible general election in Spring 2009," said Barclays Capital analyst Simon Hayes.

"There may therefore be a case for measures to boost confidence and demand.

"Looking further ahead, however, some additional fiscal tightening would enhance the chances of the government staying true to its fiscal rules."

Britons could face a general election in mid-2009, one of Prime Minister Brown's closest allies, Ed Balls, indicated in a recent newspaper interview.