British public sector debt is set to hit £180 billion as the recession worsens in the next financial year, according to Ernst and Young.

The prediction suggests that the government will have to borrow some 12.6 per cent of GDP in 2009/10 to counter a rapid surge in unemployment, a sharp increase in spending and a plunge in tax receipts.

According to the Ernst & Young ITEM Club, which bases its forecasts on the UK finance ministry's economic model, Britain has little chance of implementing a large fiscal stimulus in next month's Budget as government borrowing is set to reach a colossal amount in the coming fiscal year.

Experts suggest that the chancellor will now have no option but to revise down his growth forecasts and upgrade the borrowing projections in the April Budget.

Liberal Democrat shadow chancellor Vince Cable says, ‘These forecasts, which are independent of the government, suggest that the public finance situation is deteriorating much faster and further than ministers assumed. It is necessary for the government to support the economy in a recession, so it would not be sensible to raise taxes or cut public spending in the current environment. But it does mean there will have to be strong discipline once the recession has passed.

‘The weakness of the public finances also means there will have to be more emphasis on monetary policy. The creation of credit through quantitative easing is necessary but contains dangers if it were to get out of control.’

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