The British Chancellor of the Exchequer, Mr Gordon Brown,faces a raft of tough choices in next month's annual budget as a combination of sluggish growth, soaring debt and massive war costs squeezes the economy, a report has warned.

Mr Brown's seventh budget, to be delivered on April 9th, will be "his most challenging yet", accountants Deloitte and Touche said.

The main problem is that disappointing growth has knocked Mr Brown's financial planning completely out of kilter, Deloitte economic adviser Mr Roger Bootle said.

Consensus forecasts for gross domestic product growth in the calendar year 2003 were now down to 2.2 per cent against Brown's previous prediction of 2.5 to 3 per cent.

Next year's consensus forecast was 2.4 per cent, way down on Brown's hoped-for 3 to 3.5 percent, the report said.

Public sector net borrowing could thus be £10 billion (14.8 billion) sterling higher in the next financial year to March 2004 than the deficit of £24 billion forecast by Mr Brown in his pre-budget report, it said.

The chancellor might be tempted to increase taxes to claw back some of this money, especially given that with a general election due in 2004 or 2005 this would be politically better done now rather than later.

"However, with consumers finally starting to feel the effects of driving growth almost single-handedly in recent years, the economic dangers of further increases in tax, on top of those already due in April, are grave," Mr Bootle said.

Adding to the gloom was the continuing conflict in Iraq, to which Britain has contributed 45,000 military personnel.

Although £1.75 billion has been set aside by Mr Brown, the true war costs may end up being almost double this, the report warned.