Chancellor: credit woes will weaken UK growth

Alistair Darling has warned that the UK economy's growth has been damaged by this summer's financial turmoil.

Speaking ahead of the imminent pre-budget report (PBR), the chancellor hinted that he will cut the government's growth forecast for 2008.

He blamed the global credit crunch and the weakening US housing market, warning that they would make it harder and more expensive to borrow money in the UK.

"If you look across the world – given the importance of the US economy and given what's happened here in relation to the effect it will have on the availability of credit – it would be fairly add if you didn't take account of that," he told the Financial Times.

The government's forecast for UK economic growth currently stands at 2.5% to 3%.

Independent analysts have already been revising it lower, following a summer in which the US sub-prime mortgage crisis deepened, banks refused to lend to each other, and Northern Rock had to seek help from the Bank or England. Some have suggested that growth will be around the 2% mark. The OECD last week predicted that UK growth would reach 2.5% in 2008.

Treasury insiders have indicated that Mr Darling will deliver the PBR early next week, most probably on Monday. In it, he will outline the government's spending plans for the rest of this parliament.

Prime minister Gordon Brown said last month that the PBR will include new measures to prevent the private equity industry abusing tax loopholes.