George Osborne will be forced to rack up as much as £81bn in extra borrowing in the years ahead and resort to the "dark arts" to meet his fiscal rules, experts have warned.
The grim news comes as the Chancellor's independent watchdog, the Office for Budget Responsibility, prepares to run a torrent of red ink over its borrowing forecasts as growth disappoints – potentially leaving Mr Osborne to impose yet more austerity measures.
In March 's Budget the OBR pencilled in growth of 0.8 per cent this year, rising as high as 3 per cent in 2015. But the lingering impact of the eurozone crisis has prompted most forecasters such as the International Monetary Fund to dramatically slash growth predictions for the UK, with the Bank of England following suit earlier this month.
Reduced growth means a surge in government borrowing over the next four years to plug the revenue shortfall, according to City economists.
George Buckley, Deutsche Bank's chief economist, said Mr Osborne may be forced to add a cumulative £45bn to the deficit, while Philip Shaw, Investec's chief economist, said the damage could be as great as £81bn by 2015/16.
The extra borrowing puts the Chancellor under increased pressure in his attempts to balance the underlying current budget by 2017/18 – which he may do by pencilling in more spending cuts or tax rises at the end of the five-year period – as well as putting debt as a share of GDP on a downward course in 2015/16.
The OBR may also lower its estimate of long-term trend growth for the economy – estimated at 2.3 per cent in March – which would leave him with a bigger structural hole to fill.
"Rather than miss or drop his target we suspect he will resort to the fiscal 'dark arts' to meet his rule," Mr Shaw said.
Alongside more cuts after the next election, other options available include bringing forward spending – so debt could be shown to be falling in 2015-16 – as well as privatisations such as the Royal Mint.
The £35bn in interest payments racked up by the Bank of England through its quantitative easing programme to boost growth are also being seized by the Treasury, flattering the public finances in the short term.
"The Chancellor does have some options to enable the OBR to conclude that he is on track to meet his fiscal rules, even though several of them are the budgetary equivalent of conjuring tricks," Mr Shaw added.
Grandee lashes out
Michael Spencer, the City tycoon and Conservative donor, has hit out at the slow-moving coalition, saying the Government must throw its weight more firmly behind business. The founder of the brokerage Icap said: "The coalition is very much like a three-legged race, where Cameron and Clegg have had their legs tied together. I think that has deeply hampered decision-making."