Budget 'unlikely' to assist savers

The chief economist at KPMG has warned that the recession represents a "big problem" for the chancellor's 2009 Budget.

In an interview with ePolitix.com, Andrew Smith explained that Alistair Darling may have to downgrade his economic projections on April 22.

But this will mean that the chancellor will be forced to upgrade forecasts for public borrowing to fill the widening gap between revenues and expenditure.

Anticipated borrowing of £118bn for 2009/10, as suggested in the pre-Budget report, is "unlikely to be the peak", Smith warned.

And he hinted that it is doubtful that Darling would significantly assist people with savings in the Budget, as this would encourage saving generally.

He explained: "Those relying on income from savings are suffering collateral damage from the monetary policy committee's near zero interest rate.

"However, any move to assist them would probably also encourage saving generally, which the chancellor is unlikely to want to do for awhile.

"While it is clear that after the debt binge we need to save more in the longer term, doing so in the short term will just reduce consumer spending further and make the recession that much worse," he said.

Smith predicted that the chancellor would try to "pull off" three key aims in the Budget.

Alistair Darling intends to "ward off" the risk of recession, convince the markets that the economy will return to health and reassure the public that recovery will not be twinned with higher taxes, he explained.

But the chief economist warned that these budgetary intentions may not be "compatible".

The forecast made in the pre-Budget report of a loss in gross domestic product of just one per cent this year looks to be "far out of reach", Smith said.

Unless there is a "near miraculous" resurgence of activity, he added.

And he stated that Darling's prediction of a "short and shallow" recession back in November was "out-of-date" almost as soon as the PBR was released.

Read Smith's full interview with ePolitix.com here.