Introduction and Budget Highlights

A combination of the global credit crunch and a domestic slowdown meant that the Chancellor has been obliged to trim his forecasts for the UK's economic growth in the Budget.

Citing as a major cause the market turbulence that has spread from the US, he downgraded predicted growth for 2008 to 1.75% - 2.25% (from the 2.5% - 3% estimated in the last Budget and the 2% - 2.5 % set out in the pre-Budget report), and for 2009 to 2.25% - 2.75%.

For 2009/10, he remained optimistic that his previous forecast of growth rates between 2.5% and 3% would hold.

Mr. Darling said: "Turbulence in global financial markets - which started in the American mortgage market - has affected all economies from the United States to Asia and Europe. We have seen significant disruption across many credit markets, with a number of them barely functioning at all and, since the turn of the year, global stock markets have also been affected. This poses a major risk to the world economy."

With growth set to slow down, government borrowing - needed to make good shortfalls in income - is predicted to rise. The Chancellor said that public borrowing for next year would reach £43 billion, up from £38 billion. In contrast, the pre-Budget report had predicted that borrowing would fall to £36 billion.

However, the Chancellor maintained that the government's self-imposed golden rule of balancing expenditure and income would be met over the economic cycle, and that 2010 would see a return to surplus of £4 billion rising to £18 billion by 2012/13.

The Chancellor argued that the UK is well positioned to weather the global economic storm. However, some analysts suggest that problems specific to the UK - high household debt, high house prices, a large public sector financial deficit and the dangers of inflation - could make recovery more difficult than the Chancellor would like.

Key Budget and 2008/09 announcements and changes

• Basic rate of income tax 20%
• Corporation tax main rate reduced to 28%
• Corporation tax small companies rate increases to 21%
• Changes to claiming capital allowances - new £50,000 annual investment allowance
• Capital gains tax flat rate now 18%
• ISA investment allowance increases to £7,200
• Two pence fuel duty postponed from 1 April to 1 October 2008
• Reform of car vehicle excise duty rates and bandings
• Alcohol and tobacco duties increase
• Child benefit for first child rises to £20 from next April
• Winter fuel payments to rise to a maximum of £300 a household
• New tax liability for non-domiciles
• Extending Stamp Duty Land tax exemption to zero carbon flats retrospectively from 1 October 2007