Darling confident on borrowing

By Matt Falloon

LONDON (Reuters) - Chancellor Alistair Darling said on Tuesday the government would meet its increased borrowing commitments after the bulky economic lifeline package announced in Monday's pre-budget report.

Markets have grown increasingly concerned in recent weeks about the prospect of a deluge of bonds as the Labour government borrows more to support the economy, which is sliding into its first recession since the early 1990s.

Darling announced a 20 billion pound stimulus, forecasting borrowing would rise to 118 billion pounds next year. The Debt Management Office raised its gilt issuance to a record 146.4 billion pounds for 2008/9, weighing on gilt prices.

"I'm confident we have made the right judgement, and I'm confident the government can meet all its objectives and obligations," he told Reuters after being asked if markets could absorb the additional bonds caused by his expanded borrowing.

Many economists have also criticised Darling for being too optimistic in forecasting a fairly strong economic recovery in 2010 after a contraction next year. If the recovery is slower than that, government borrowing forecasts could rise again.

"There's a lot of uncertainty around but I think those forecasts are reasonable," Darling said. "Especially as other countries take action, America in particular, I think there are reasons to be confident in the future."

Darling defended his decision to temporarily cut VAT sales tax to 15 percent from 17.5 percent, despite worries that it raised the risk of deflation next year.

Bank of England Governor Mervyn King said on Tuesday the tax cut would push inflation lower and -- alongside lower commodity prices, a weakening economy and deepening financial crisis -- had helped shift the inflation outlook significantly downwards.