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It was hard not to feel a little sorry for Alistair Darling. Even the most austere of new chancellors delivering their first Budget might hope to bring a little flourish to the occasion. Yet circumstances, and the awkward legacy bequeathed to him by Gordon Brown, left Mr Darling scant hope of that. Instead, he was condemned to set out a dismal outlook for the economy in the dreariest possible terms.

Faced with a deepening downturn in the housing market and weakening consumer spending at home, and a looming US recession, global slowdown and worldwide credit crunch, Mr Darling had no option but to downgrade further his expectations of the economy’s performance.

Yet while, in an ideal world, he might have hoped to counter these woes through higher spending or cuts in taxes, the Chancellor was hamstrung from taking such action by the badly strained state of the Government’s finances.

Faced with this predicament, Mr Darling seems to have resorted to two tactics. The first was to bore the country into a false sense of complacency. The second was to fish out from the Treasury’s box of Budget tricks one of the Prime Minister’s favourite items, a pair of rose-tinted spectacles.

While, as expected, the Chancellor scaled back his forecasts for growth this year still further after his cuts in October, and lowered his expectations for next year, his prognosis, especially for 2009, continues to look optimistic.

For this year Mr Darling cut half a percentage point off projected growth, lowering this to a range of 1.75 to 2.25 per cent. The bottom end of this range is now in line with the average City view but is far above the gloomiest forecasts for GDP to rise by as little as 1.2 per cent.Next year the Chancellor still expects the economy to rebound fairly robustly. He forecasts 2009 growth of 2.25 to 2.75 per cent, just a quarter-point down from his view in the autumn. That compares with arguably more realistic City forecasts for growth next year to be as low as 1.7 per cent.

The obvious justification for Mr Darling’s relatively upbeat scenario is that the outlook is fraught with uncertainty. Yet the other motivation for the Chancellor to opt for the rosiest possible view of growth was clear from the severe stresses on the public finances laid bare yesterday.

Had the Chancellor factored into his fiscal forecasts still worse prospects for next year then the state of the Government’s finances would have looked disastrous, rather than merely dire.

As it was, despite the flattering effect of the strongest plausible assessment of future growth, government borrowing is still shown plunging deeper into the red as the housing downturn, the consumer slowdown and tougher times in the City take a severe toll of tax revenues from stamp duty, VAT and income tax.

The new borrowing projections are also flattered by higher expected inflation this year, which increases expected revenues, with the fiscal forecasts based on consumer prices climbing by 2.75 per cent over 2008 — far above the Bank of England’s 2 per cent target.

Despite this, Mr Darling now expects to have to borrow £7 billion more in the new financial year, 2008-09, than he did in October, raising the likely deficit to £43 billion, up from the £30 billion that Gordon Brown predicted in last year’s Budget. In 2009-10 the Chancellor also added an extra £7 billion to borrowing plans, and over the next four financial years the Budget added a further £20 billion to planned government borrowing.

Worse still, this latest sharp deterioration in the Treasury’s finances came despite the Chancellor having gambled on raising taxes next year. Although the slated tax increase in 2009 is only £800 million (rising to £1.9 billion from 2010-11), this will be seen as a dangerous gambit, adding to a continued, sharp slowdown in planned government spending growth in tightening the screws on an economy likely to still be in, at best, a weakened state.

There was scant sign in yesterday’s statement of the measures to bolster growth that Mr Darling had previously hinted at. The most that the Treasury could point to is that higher borrowing in the short term will help to finance a £1.5 billion jump in benefit bills that it expects in each of the next two years owing to rising unemployment and higher inflation.

The lack of any more aggressive fiscal measures to boost growth is easily understood given the Treasury’s straitened circumstances, which leave its financial credibility in serious jeopardy and the fiscal rules created by Mr Brown on the cusp of being broken.

Yet Mr Darling must fear that, just as the Government is living on ever-rising amounts of borrowed money, he is a Chancellor living on borrowed time. If the economy enters a more severe downturn this year, and fails to bounce back in the next, the economic, financial and political consequences could become very painful indeed. In the meantime, he is left to cross his fingers, and hope for the best.

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