THE British government is preparing to announce a new set of economic fore casts that will severely reduce its scope for tax cuts in the run up to the general election.

Despite the recent spate of good news about the economy, the Chancellor of the Exchequer, Mr Kenneth Clarke, will next week have to deliver a gloomier outlook than the one he made at the time of the last budget.

The British treasury is poised to downgrade its forecast for growth in 1996 and admit that government borrowing will be billions of pounds higher than its original target. A shortfall in tax revenues last year has derailed the original borrowing plans.

As a result of the disappointing state of the government's finances, Mr Clarke is expected to play down hopes of any tax cuts this year when he publishes the department's summer forecast on Tuesday.

His problem will be how to present the forecast without diluting his upbeat message that the economy will recover by next spring. The Chancellor recently signalled he would prefer the latest possible election date to take advantage of the recovery in growth, which is being fuelled by a strong upturn in consumer spending.

The growth forecast for this year will be cut to 2.5 per cent from 3 per cent, as Mr Clarke hinted in last month's Mansion House speech. The promise of 3 per cent growth will be postponed to 1997.

The treasury's projection for the public sector borrowing requirement will be raised from £22.4 billion sterling to around £27 billion.

Most City economists still expect Mr Clarke to deliver lower income taxes in the Budget. Mr Bill Martin, chief economist at Swiss bank UBS, said. "He might unveil more public expenditure savings when we get to the Budget. Another £3 billion off an already implausible set of plans is neither here nor there." Mr Martin predicted the incoming government would inherit a large deficit after the election.