Brown expected to cut growth forecast in PBR

Gordon Brown will unveil his pre-Budget report on Monday 5 December, he told MPs yesterday. The Chancellor is expected to use the report, which is the precursor to the March Budget, to cut his growth forecasts for this year to below 2 per cent.

Yesterday the European Commission slashed its forecasts for UK economic growth this year and next. It said the economy would grow just 1.6 per cent this year and 2.3 per cent in 2006 - both downward revisions from its earlier forecast of 2.8 per cent.

The slowdown in growth will also raise doubts that the Chancellor will be able to meet his targets of reducing the Government's deficit on current spending to meet his "golden rule".

Aidan O'Carroll, the national head of tax at Ernst & Young, said the current slowdown was the most challenging Gordon Brown had faced and forecast tax rises in one guise or another. "The economic circumstances aren't playing into the Chancellor's hands as they did in previous years," he said, predicting that tax rises were most likely to affect businesses.

The Treasury had held fast to its outlook of above-trend growth of between 3 and 3.5 per cent for two years but in September indicated the real figure would be between 2 and 2.5 per cent.

The latest figures from the high street, meanwhile, showed that retailers slashed their prices last month in a partly successful attempt to attract shoppers. Sales volumes were 0.2 per cent higher in October, the Office for National Statistics said yesterday.

But steep cuts in prices meant that the growth in the cash value of shop sales has fallen to its slowest pace since modern records began.