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UK's Brown, leader-in-waiting, trumpets economy

Written by: Staff
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LONDON, Mar 22 (Reuters) British finance minister Gordon Brown, delivering his 10th and maybe last budget on Wednesday, said he was presiding over a strengthening economy, as pressure increases on Prime Minister Tony Blair to hand over power to him.

''The British economy is strong and strengthening,'' Brown declared to a packed and raucous parliament as he restated his forecast for 2.0 to 2.5 percent growth this year and 2.75 to 3.25 percent expansion in 2007.

Experts had expected Brown to leave his economic forecasts intact as only three months have passed since he downgraded them in December's pre-budget report.

The British economy grew by just 1.8 percent in 2005, the weakest pace in 13 years, casting a shadow over Brown's long record as Chancellor of the Exchequer, which now appears to be lifting.

The main news for the financial markets was a ramping up of long-dated government bond issuance to ease a shortage that has pushed bond yields to record lows and driven up the pensions deficits of some of Britain's biggest companies.

Brown said long-dated gilts would increase to two-thirds of total issuance in the coming fiscal year.

But the 10th budget statement of the so-called ''Iron Chancellor'' was as much about politics as economics.

Politicians of all hues are itching to see Brown clash with Conservative leader David Cameron for the first time -- Cameron will respond to the budget speech -- as the two will almost certainly fight each other for the keys to power at the next election.

Blair has said he will not contest another election and Brown, 55, is odds-on favourite to succeed him as leader of the ruling Labour party which after nearly a decade in power is facing a resurgent opposition.

A handover to Brown does not look imminent but Blair is facing growing calls to step down, not least from a sizeable chunk of Labour members who have successfully opposed a number of his legislative plans in the past year.

Pressure on Blair has ratcheted up a further notch in the past week after it was revealed rich businessmen were nominated for seats in the upper house of parliament after lending Labour large sums of money which were not publicly declared.

Brown's aides said he was not aware of the loans.

BRIGHTENING OUTLOOK The economic outlook is healthier than it was a few months back when many said the weakest growth in more than a decade would tarnish Brown's reputation ahead of any leadership bid.

Since then consumer spending has picked up and the housing market has acquired a new lease of life, making Brown's forecast of 2.0 to 2.5 percent growth this year look pretty manageable, analysts say.

The FTSE-100 index of leading shares, meanwhile, has climbed to its highest level since 2001, above the 6,000 mark, which in turn has helped boost the outlook for public finances as corporation tax receipts have soared.

Brown reaffirmed his borrowing forecast but analysts still say he will have to raise taxes or cut spending at some point.

''The medium to long-term outlook for the public finances depends on spending and not taxes,'' said Philip Shaw, chief economist at Investec.

''For political reasons a set of major tax increases looks unlikely over the next couple of years, especially given Gordon Brown's prime ministerial ambitions.'' Critics say Brown has failed to raise productivity rates and business has been complaining about an increased tax and regulatory burden. That will be the Conservative line of attack.

''I fear this is going to be long on all sorts of rhetoric about where a Brown premiership would take us rather than specific measures that would help our country compete in the future,'' Conservative Treasury spokesman George Osborne told BBC Radio before Brown began his budget speech.

REUTERS SD BD2040

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