Darling seeks to reassure markets
Alistair Darling will deliver his final Budget before the election today, under pressure to convince the markets he is serious about cutting Britain's record deficit while offering Labour MPs some pre-polling day cheer.
With the election thought to be just six weeks away, the Chancellor will have to walk a fine line as he seeks to offer voters hope for the future while beginning the grim task of spelling out where the spending axe will fall.
He has said repeatedly there will be none of the traditional pre-election giveaways, instead promising a “sensible, workmanlike” financial package, intended to stimulate the fragile economic recovery.
Officials have made clear that an unexpected ‘windfall’ from better-than-expected Government borrowing figures — put by some experts at £12bn — would be used primarily to reduce the £178bn deficit rather than fund a spending spree. There will be some populist announcements including a new crackdown on tax evasion, with punitive fines for wealthy investors who try to hide money in offshore tax havens — intended to send a message that economic pain will be spread fairly.
Mr Darling is expected to order the part-nationalised Royal Bank of Scotland and Lloyds to provide a further £90bn in business lending after complaints that the Government has not done enough to restore the flow of credit.
He gained a pre-Budget boost yesterday after a sharper than expected fall in inflation in February.
Official figures showed a fall in the Consumer Prices Index (CPI) benchmark to 3% — from a 14-month high of 3.5% in January —as prices rose by less than a year ago. The fall will also soothe concerns over the recent inflation spike lingering longer than expected and building pressure at the Bank of England for rate hikes.
Many experts now forecast borrowing costs holding at their current 0.5% record low until the end of the year, helping to shore up a fragile economic recovery.
Northern Bank economist Angela McGowan said: “The latest data will reinforce the Bank of England’s view that above-target inflation in the first quarter of 2010 is temporary in nature and should not unduly influence the Bank’s loose monetary stance. As inflation slides downwards during 2010 there will be no rush for the Governor to introduce any interest rate hikes.”