ANALYSIS-Darling suspends budget rules to tackle downturn

By David Milliken

LONDON (Reuters) - Chancellor Alistair Darling suspended the government's self-imposed budget rules on Monday to tackle the economic downturn, and said he would wait until growth was recovering before targeting a balanced budget.

The fiscal rules were a hallmark of Prime Minister Gordon Brown's 10-year tenure as finance minister and a key element in his Labour Party's effort to present itself as a better economic manager than its Conservative opposition.

Yet Britain's sharp economic downturn following more than a year of global financial turmoil meant that the main part of the rules now had to be suspended, Darling told legislators when he unveiled a fiscal stimulus plan worth over 1 percent of GDP.

"In the current circumstances, to apply the rules in a rigid manner would be perverse and damaging. We would have to take money out of the economy, making a difficult situation worse," Darling said.

The spending plans unveiled on Monday will give a 20 billion pound fiscal boost over the next three years, and push national debt towards one trillion pounds.

Darling said that he was setting a "temporary operating rule" within the main fiscal framework, which meant the government only expected to attain a balanced budget in the 2015-16 tax year.

Even that assumes the economy starts to recover in 2010, and only then will the government start to cut the deficit each year by a sum equivalent to 0.5 percent of GDP each year on a cyclically adjusted basis.

"The government's forecasts for GDP are fairly optimistic, which might delay the recovery phase," said George Buckley, chief UK economist for Deutsche Bank.