Osborne tries to sweeten pill for austerity in Britain

Wed Dec 5, 2012 7:49am EST
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By Matt Falloon and David Milliken

LONDON (Reuters) - More austerity looks certain when British finance minister George Osborne presents a half-yearly budget statement on Wednesday, even if he tries to juggle some spending around to ease the pain.

A darker economic outlook means Osborne is likely to commit to further spending cuts years into the future to save his flagship deficit reduction plan, though he also plans some new investment to sweeten the pill in the short term.

Osborne, who will update parliament with new growth and budget deficit figures just after 7:30 a.m. EDT (1230 GMT), may have to admit borrowing will rise this year -- an embarrassment for a man who put frugality at the heart of the government's policy.

His austerity targets are under threat and a sluggish economy has played havoc with the Conservative-Liberal Democrat coalition's original plan to eliminate a large structural budget deficit before the next parliamentary election due in 2015.

Prime Minister David Cameron sent out an early message on Twitter after Osborne briefed the cabinet on the forecasts, saying: "We are on the right track and making progress."

However, depending on how bad the independent Office for Budget Responsibility's growth and borrowing estimates turn out to be, Britain could be in danger of losing its prized triple-A credit rating before long.

Growth in Britain's service sector slowed to a snail's pace, a closely-watched Markit/CIPS survey showed, suggesting the economy could be on the verge of contraction again.

The chances of Osborne masterminding a strong recovery in time for voters to feel the benefits before a 2015 election appear to be shrinking. Only one in five voters trust him to fix the economy, according to a Comres/ITV News poll.   Continued...

Britain's Chancellor of the Exchequer George Osborne leaves Downing Street in London, December 4, 2012. Osborne will invest 5 billion pounds ($8 billion) in schools, science and transport capital projects, the government said on Tuesday, funded by departmental savings across the next two-and-a-half years. Osborne, struggling to complete a tough austerity programme to bring down British government borrowing, has come under pressure to do more to boost a flagging economy. (REUTERS/Stefan Wermuth