Britain awaits tough new budget aimed at growing recession-hit economy

LONDON (AFP) - Britain's government is set to unveil plans to grow the country's recession-threatened economy, despite insisting on greater state savings as it struggles to meet its deficit-reduction target.

Finance Minister George Osborne unveils his latest tax and spending plans in an annual budget likely to stick firmly to the coalition government's austerity drive, even though the country's economy is sailing close to another recession.

Chancellor of the Exchequer Osborne, whose Conservative party heads a coalition government with the Liberal Democrats, will present his 2013-14 budget to parliament at 1230 GMT on Wednesday (8.30pm on Wednesday, Singapore time).

Analysts expect Mr Osborne to stick to his so-called Plan A of driving down the record budget deficit inherited from the previous Labour administration in 2010 - despite calls from both inside and outside the government to curb massive spending cuts.

On the eve of the budget announcement, Prime Minister David Cameron's Downing Street office said some government departments would be made to cut their budgets to save £2.5 billion (S$4.72 billion) over the next two years.

The money saved would be used to on infrastructure spending, a spokesman said.

"All unprotected departmental resource budgets will be reduced by a further 1.0 per cent a year for the next two years," the spokesman told reporters.

"That will help fund further investment in capital spending which will be announced" in the budget.

He added that spending on health, schools and overseas development aid would be protected, while defence would benefit over the next two years from £1.6-billion in underspend in its previous budget allocation.

UniCredit Research economist Mauro Giorgio Marrano said that "any new measures implying an increase in expenditure ... will need to be funded by spending cuts and/or higher taxes in other areas, leaving little scope for a significant stimulus to the economy."

Mr Cameron earlier this month insisted that his government, which passed the mid-term mark in January, would stick to the path of austerity despite a turbulent few weeks that saw Britain stripped of its top-level AAA credit rating.

But Business Secretary Vince Cable has called on the government to consider borrowing more to stimulate economic growth.

Cable, a leading Liberal Democrat, said that the danger of slow growth may now be more damaging than the loss of confidence through increased borrowing.

Also on Wednesday, Mr Osborne was expected to revise the government's growth and budget-deficit forecasts to better illustrate Britain's present economic woes.

Markets were also waiting to see whether Mr Osborne uses the budget to announce changes to the Bank of England's inflation target to boost an economy at risk of its third recession since the start of the global financial crisis five years ago.

The chancellor traditionally uses the budget to state the central bank's policy mandate, which for many years has been to meet an inflation target of 2.0 per cent.

Incoming Bank of England (BOE) governor Mark Carney, the Canadian central bank chief who takes up his role in July, has suggested that economic output might be a better target measure than inflation.

The BOE uses interest rates as a tool to try and keep inflation close to the government-set target, but in recent years it has spiked above 5.0 per cent, hampering economic recovery.

British 12-month inflation rose to 2.8 per cent in February from 2.7 per cent in January, official data showed on Tuesday.

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