Britain forecasts growth slowdown amid election furore

LONDON (AFP) - - The British government, under fire over its decision not to call a snap general election, admitted Tuesday that the economy was facing a sharper-than-expected slowdown due to global financial turmoil.

British finance minister Alistair Darling's maiden pre-budget report Tuesday was overshadowed by a row over Prime Minister Gordon Brown's decision not to call an early general election amid opinion polls that favoured the opposition Conservative party.

Darling said his report came at "a time of increased international economic uncertainty and a more fragile global environment, which has already seen turbulence in America, Asia and Europe."

He used his speech to parliament to offer additional funds for British forces fighting in Afghanistan and Iraq, while proposing to close tax loopholes enjoyed by the private equity industry.

Conservative party finance spokesman George Osborne branded Darling's tax and spend pledges as "a pre-election budget without the election," adding that the report was a "desperate cynical stunt from a desperate and weak prime minister."

Darling's pre-budget report is a curtain-raiser to his main annual budget due early next year. He replaced Brown as chancellor of the exchequer in June, as his predecessor became prime minister.

The chancellor told parliament that British economic growth would likely come to 2.0-2.5 percent in 2008 -- which marked a sharp downgrade from the Labour government's previous forecast of 2.5-3.0 percent.

Despite slashing the forecast, Darling lauded Britain's economy as "the fastest growing major advanced economy in the world" -- and also maintained GDP growth forecasts of 2.5-3.0 percent in 2009 and 2010.

He added: "It is that underlying strength of the economy that will stand us in good stead as we face the current international instability that started in the American mortgage market and has now spread across the world.

"The full impact from turbulence on the international markets is as yet unclear.... but the IMF (International Monetary Fund) has said this international uncertainty will have an effect on growth right across the world."

Turning to domestic policy, Darling revealed that the inheritance tax threshold for married couples and those in civil partnerships would be lifted, from 300,000 pounds to 700,000 pounds by 2010.

The move was widely interpreted as a response to the well-received Conservative party proposal to slash inheritance taxation -- or so-called death taxes.

On the topic of climate change, Darling appealed for a Europe-wide level of value-added tax for energy efficient goods and proposed a 5.0-percent level in Britain.

Analysts said that his pre-budget was largely in line with market expectations.

"In light of the election/no election debate heading into this pre-budget report, the measures introduced came as little surprise," noted CIBC economist Jodie Tiller.

Darling also predicted that British gross domestic product (GDP) growth would stand at 3.0 percent in 2007, in line with previous forecasts. He added that annual inflation would be close to the Bank of England's 2.0-percent target in the next two years.

The Organization for Economic Cooperation and Development last month warned that recent financial market chaos that plagued British banking group Northern Rock could put the brakes on Britain's future growth.