LEAD: Britain slashes economic forecasts as "debt challenge" remains

By Anna Tomforde Nov 29, 2011, 19:29 GMT

London - The British government conceded Tuesday that its ambitious deficit-cutting strategy will fall behind schedule because of slowing economic growth and fallout from the eurozone debt crisis.

'The debt challenge is greater than we thought, and its effect will last even longer,' George Osborne, the chancellor of the Exchequer, told parliament in a budget review Tuesday.

'If the rest of Europe is heading into recession, it may be hard to avoid one in the UK,' he added.

His aim, announced a year ago, to see Britain's structural deficit wiped out by 2014/15 was no longer realistic. The target date would now have to be moved to 2015/16, said Osborne.

Borrowing over the next four years would also be higher than anticipated, and the budget deficit was expected to stand at 79 billion pounds (123.5 billion dollars) in 2014/15, compared with earlier predictions that it would fall to 37 billion pounds by that time.

Forecasts for economic growth would also have to be slashed, Osborne announced.

According to the Office for Budget Responsibility (OBR), gross domestic product would grow by 0.9 per cent in 2011 and by 0.7 per cent next year, compared with previous predictions of 1.7 per cent and 2.5 per cent respectively.

Osborne said experts had blamed the lower-than-expected growth primarily on the 'sovereign debt crisis in the eurozone' and the prevailing 'instability' in the European and global economy.

Osborne announced investments of 30 billion pounds into new infrastructure projects, such as road and rail, and a credit guarantee scheme for small and medium-sized businesses to stimulate growth.

'We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth,' said Osborne.

But Ed Balls, the financial spokesman for the opposition Labour Party, said the revisions announced by the government Tuesday demonstrated the 'colossal failure' of its economic and fiscal strategy.

Osborne had failed in his objective to get the deficit down, while inflation and unemployment were rising. 'The truth is it's just not working,' said Balls.

The heated exchanges about the future of the economy came on the eve of large-scale protests against planned pension cuts by millions of public sector workers.

The walkouts Wednesday are expected to hit schools, hospitals and immigration services, with long delays predicted for travellers at London's main airports.