Britain may soon face a "financial crisis" if the government refuses to cut public spending or raise taxes, warns the Centre for Economics and Business Research.
According to the consultancy firm's quarterly business forecast, a pending shortfall in economic growth will force whoever is chancellor after the next general election - expected by 2005 - to take tough action on public spending and taxes.
A chancellor ignoring the issues risks a "financial crisis" by 2007 or 2008, the CEBR says.
Predicionts by the consultant are for UK GDP growth to hit 3% this year and 2.9% next year.
This is mainly down to greater than expected strength of consumer spending, the consultancy adds.
Consumer spending will, however, slow down during 2005 as rising interest rates are likely to affect the housing market, pushing GDP down to 2.2-2.4% over the following three years.
In March this year, Brown predicted growth of 3-3.5% in both 2004 and 2005, and growth of 2.5-3% in 2006.
"Chancellor Gordon Brown is in for an unpleasant surprise on public finances," the CEBR says.
"Instead of shrinking, we expect the government deficit on the public sector net cash requirement measure to rise gradually from £39.8 billion in 2003-04, to £40.5 billion in 2004-05 and £42.3 billion in 2005-06."
It adds: "The reasons for this adverse trend will be a shortfall in economic growth compared to the figures predicted by the chancellor, and also a disappointing performance by tax revenue."
Whichever political party wins the next general election, it looks stuck with sorting out the "crisis" in government finances.
Douglas McWilliams, CEBR founder, says: "My advice to the leaders of all political parties is - try to make sure that your opponents win the next election."IFAonline
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