Thinktank warns UK economy faces £114bn black hole

The UK's public finances face a funding shortfall of £114bn despite moves by the government to curtail spending, a leading economic thinktank has warned.

The Institute for Fiscal Studies (IFS) said today the sheer scale of the cuts still to come is daunting, with the harshest austerity measures being introduced since the Second World War.

It warned despite an expected underspend by government departments in 2011-2012, the hole in the public finances had grown sharply, and by £23bn alone since last March.

The IFS said: "Our latest estimates suggest that since the financial crisis and recession began, a £114bn hole in the public finances has become apparent.

"This is what caused the Chancellor to pencil in two more years of severe spending cuts to allow him to remain on course to meet his fiscal mandate."

The Chancellor is trying to get non-investment spending to be covered by tax receipts by the end of the forecast horizon.

The IFS said the argument for more quantitative easing is also firmer than a year ago, but it warned this could have little impact.

"The case for a significant short-term fiscal stimulus to boost the economy is stronger than it was a year ago," it said.

"There seems little prospect it would prompt an offsetting monetary tightening in the present climate. But a small loosening would be likely to deliver only a small boost to the economy, while a big one might risk undermining investor confidence."