Bootle says Budget will not ease short-term pressure on UK

Deloitte's Roger Bootle believes the forthcoming Budget is unlikely to lessen near-term pressures on sterling asset markets but he is optimistic about longer term prospects.

The firm's economic adviser also believes this year's Budget will be almost unrecognisable from the traditional spending plans promised before a General Election.

He says with the UK's budget deficit comparable with that of Greece, the markets and credit rating agencies would severely punish any sort of pre-election splurge by Alistair Darling.

Such a move would also be unpopular with the electorate, who are well aware higher taxes and deep spending cuts already lie ahead, he adds.

However, although Bootle believes the Budget will have little effect on sterling asset markets, he forecasts the situation will ultimately improve.

"If I am right in expecting worries about the fiscal outlook finally to start to ease later in the year, alongside fading inflation concerns and still exceptionally loose monetary policy, both gilts and the sterling exchange rate should eventually begin to fare better," Bootle says.

He believes likely Budget measures might include additional expenditure on areas such as health, education and defence, with measures to tackle youth unemployment and cuts in corporation tax also possible. However, such moves would be delaying the inevitable, he warns.

"The lack of detailed spending plans beyond the current year and Mr Darling's optimistic predictions for economic growth cast major doubts on whether even the current plans to halve the budget deficit over the next four years can be achieved," Bootle says.

"Meanwhile, with Greece and other countries announcing ever more aggressive measures to tackle their own fiscal crises, and sterling assets suffering from fiscal worries, the pressure for a correspondingly faster reduction in the UK budget deficit will continue to build.

"As such, much more decisive action to put the public finances on a path back towards health will be needed after the election. While the prospect of a hung parliament has increased the uncertainty over the precise timing and size of such action, a very substantial fiscal squeeze lies ahead under any form of government."