Budget leaves little margin for error

By Keith Weir

LONDON (Reuters) - The government's budget forecast on Wednesday that the economy will rebound to strong growth after its worst performance since World War Two creates a hostage to fortune with an election due in little over a year.

The centre-left Labour government needs to engineer a political recovery before the election due by mid-2010. Latest polls show the opposition Conservatives with a lead of at least 10 points in opinion polls. Labour has ruled since 1997.

* State of public finances means that whoever wins the next election faces a period of lower spending and higher taxation, raising the spectre of a "poisoned chalice" poll.

* Chancellor Alistair Darling forecast economic recovery by the end of the year, leaving little margin for error before the election is due. If he is wrong, and forced to admit so in the pre-Budget report later this year or in next year's Budget, that would offer a gift to his opponents in the election run-up.

"The government are boxed into a corner and their strategy now is just to hold on and hope for the best," said Vince Cable, finance spokesman for the opposition Liberal Democrats.

Labour member of parliament Rosemary McKenna said she did not expect an election for at least a year or so.

"If all the measures that he has put in place show an effect by the beginning of next year, the contrast will be very strong with an experienced PM (Prime Minister Gordon Brown) and chancellor (finance minister) and a very, very inexperienced opposition who ... are not able to demonstrate any policies," she said.

* The budget contained measures to counter the rise in unemployment, but the election is likely to be held with a backdrop of a jobless total as high as 3 million -- around 10 percent of the workforce.