Chacellor Gordon Brown faces a £15 billion shortfall in public finances due to the country's slowing economic growth, a prominent report has warned.
Accountants Ernst & Young revised their annual growth forecast down from 2.7% to 2.1% under the weight of weaker second-quarter consumption, investment, manufacturing and export data, leaving the public sector as the only significant driver of growth.
"The consumption slowdown is necessary and welcome, but the failure of investment and exports to pick up the slack is worrying, symptomatic of a major weakness in the supply side of the economy," the firm claims in its respected Item Club report.
The weakening economy, however, means that Brown will not be able to raise income taxes in the short-term to make up the deficit in public finances.
Even an expected quarter-percent interest rate cut next month will not boost consumer confidence enough to raise taxes, the report claims.
Economists had widely predicted tax rises in next year's budget.
"The present fiscal framework is very flimsy, and it is not difficult for the Treasury to find the odd £10 billion sufficient to let him off the hook in this cycle," said Peter Spencer, chief economic advisor to Item Club.
"However, the chancellor's big problem is that he will start the next cycle in serious structural deficit with no obvious political window of opportunity for correction.
"Quite simply we cannot keep propping up the UK economy by cutting interest rates, stimulating consumption and deferring personal tax increases."
The economic disproportion has reached a "critical stage", the report states. While fundamentals are improving for a rebound in consumer confidence, with the housing market showing signs of recovery.
High street sales, however, are not predicted to pick up until just before Christmas.
