Risky outlook for Mr Brown

The latest British Chambers of Commerce survey contained hints of a rebound in London's economy in the second quarter of this year. However, the picture for the country as a whole remains more than usually uncertain, thanks to a housing market which is still rising in the North but faltering in the South, and with it the outlook for the public finances.

The average forecast from 30 independent commentators surveyed by the Treasury is that the Chancellor's revenue calculations over the medium term are too optimistic. They depend, for example, on tax receipts from City profits and pay packets recovering, which is very far from guaranteed.

Even if the economy grows by the 2 to 2.5 per cent Mr Brown predicts in 2003, his expectations of a big pick-up in growth the following year are looking increasingly unlikely. His forecasts for public sector borrowing had to be revised upwards sharply from the previous November and look in poor shape. #

The team of economists consulted by the Treasury calculate that the Chancellor will have to find £10 billion more than the £33.7 billion he forecast in his last budget speech. These predictions are fuelling fears in the City that Mr Brown will have to raise taxes yet again or squeeze public spending.

The deficits are not on a scale comparable with those of the Conservatives in the early 1990s; but this is not quite the prudence for which Mr Brown was once famed. Thanks to the surpluses he built up in Labour's first term, the Chancellor is likely to meet his golden rule of balancing the budget across the economic cycle; but the Government may not escape from the red until 2005-06.

By then, the next election will have been fought and Mr Brown's hopes of succeeding Mr Blair largely decided. It may be that the weaker dollar will spark the US economy into life, taking ours with it, though gloom in Euro-land will offset the benefits.

But it is also possible that consumers will rein in their debt-fuelled spending well before exports and corporate investment take over as engines of growth - particularly if, as recent evidence from London and the South East suggests, house prices head downwards.

If Mr Brown misses his borrowing targets, it could damage his reputation for prudent stewardship of the economy.