British Chancellor of the Exchequer Mr Gordon Brown said public debt will be sharply higher than expected this year and next.
In response to sluggish tax revenues and rampant public spending, Mr Brown used his pre-budget report on Wednesday to forecast public sector net borrowing would rise to £37 billion in the current fiscal year and to £31 billion in 2004/05.
That represents a debt increase of £17 billion for this year and next from his previous estimates.
There was better news on economic growth - forecast by Mr Brown at 2.1 per cent this year and much faster, between 3.0 and 3.5 per cent for the following two years.
In his main budget in April, Mr Brown had forecast growth of 2.0-2.5 per cent this year and 3.0-3.5 per cent for the next two years, forecasts that were widely dismissed at the time.
"When I made our forecast the opposition said that it was not just incautious and wrong but 'a deliberate misrepresentation' of Britain's economic prospects and not to meet it destroyed credibility," Mr Brown said pointedly.
But on public debt he faces serious questions.
In his main budget, Mr Brown had forecast borrowing of £27 billion this year and £24 billion next, numbers that were greeted with scepticism by City economists who thought Mr Brown was likely to end up borrowing far more. He has now admitted as much.
Mr Brown confirmed that he would change the Bank of England's inflation target to the internationally recognised harmonised index of consumer prices (HICP).
"It is more reliable...It is more precise," he said. He said he would tell the Bank of England to target inflation at 2.0 percent under the new measure. Currently the Bank has been targeting retail price inflation excluding mortgage payments (RPIX) at 2.5 per cent.
The chancellor will also increase by £800 million Britain's spending on operations in Iraq, Afghanistan and waging the "war on terror".
Last week, Mr Brown said about £5.5 billion had been allocated or spent by the British government. But today he said that figure would rise to £6.3 billion over this year and next.