EU tells Britain to cut budget deficit by 2009/10

By Marcin Grajewski

BRUSSELS (Reuters) - The European Union's executive arm proposed on Wednesday giving Britain until the end of the 2009/10 fiscal year to cut its budget deficit in a move embarrassing for Prime Minister Gordon Brown's fiscal policies.

The European Commission said Britain should lower its deficit to below the bloc's ceiling of 3 percent of gross domestic product by the proposed deadline.

The Commission's recommendation, which must be approved by EU finance ministers to take effect, is part of the bloc's budget disciplinary procedure against Britain.

"We expect the UK authorities to adopt the measures necessary to correct the situation at the latest by 2009/10," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement.

The EU's disciplinary procedure is unlikely to have major practical consequences for Britain other than being an embarrassment for Brown, who has often boasted about his fiscal policies.

"While the European Commission's move is deeply embarrassing for the government, and Gordon Brown in particular, it is actually likely to have little, if any, practical impact," said Howard Archer, chief economist at Global Insight.

Since Britain is outside the euro zone, the bloc cannot fine it for breaching the deficit rules. It sets deficit cut targets, but has little leverage to enforce them.

Britain is now the only EU country apart from Hungary subject to the bloc's budget disciplinary procedure. Most of the other 25 EU countries have used recent healthy economic growth to slash their deficits.