• Alistair Darling's third Budget will be hardly recognisable as the last before a general election. With the UK's budget deficit baring comparison with that of Greece, the markets and credit rating agencies would severely punish any sort of pre-election splurge. Neither would it go down well with an electorate well aware that higher taxes and deep spending cuts already lie ahead.
  
  
• At the same time, though, the Chancellor will point to the fragility of the economic recovery in resisting calls from some economists for a faster fiscal consolidation. Any modest proceeds from lower unemployment and the bonus tax windfall are likely to be largely spent rather than saved, hardening the election battle lines between the Government and the Conservatives.
  
  
• Likely Budget measures might include some additional expenditure on politically sensitive areas such as health, education and defence. Measures to tackle youth unemployment and cuts in corporation tax are also possible, perhaps partly financed by higher duties on alcohol and tobacco.
  
  
• But all of this will simply be putting off the inevitable. The lack of detailed spending plans beyond the current year and Mr Darling's optimistic predictions for economic growth cast major doubts on whether even the current plans to halve the budget deficit over the next four years can be achieved.
  
  
• Meanwhile, with Greece and other countries announcing ever more aggressive measures to tackle their own fiscal crises, and sterling assets suffering from fiscal worries, the pressure for a correspondingly faster reduction in the UK budget deficit will continue to build.
  
  
• As such, much more decisive action to put the public finances on a path back towards health will be needed after the election. While the prospect of a hung parliament has increased the uncertainty over the precise timing and size of such action, a very substantial fiscal squeeze lies ahead under any form of government.
  
  
• In the markets, the Budget is unlikely to do much to ease the near-term pressure on sterling asset markets. But if I am right in expecting worries about the fiscal outlook finally to start to ease later in the year, alongside fading inflation concerns and still exceptionally loose monetary policy, both gilts and the sterling exchange rate should eventually begin to fare better.
  

  Download Roger Bootle's full Budget 2010 preview (PDF, 55 KB)