Will Brown blame Europe?

The new projections will be unveiled during Wednesday's Budget, which is also expected to show that the government will have to borrow more than predicted.

According to the Observer and Independent on Sunday newspapers, Mr Brown will say that disappointing growth rates in Europe have dragged back the progress of the UK economy.

However, the chancellor is expected to stick to plans which will see a big increase in spending on health and education over the next few years.

Europe's fault?

Mr Brown had already lowered his UK growth forecasts in last November's pre-Budget report to 2.5-3% for 2003 and 3-3.5% in 2004.

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But these projections are much more optimistic than independent forecasts, and analysts expect them to be cut to 2-2.5% for 2003 and 2.5-3% for 2004.

According to the Independent and Observer, the chancellor will point to recently leaked figures which show that Germany's economy is expected to grow by only 0.4% this year, while France's 2003 growth forecast has been cut from 2% to 1%.

The data showed that economic growth for the eurozone as a whole during 2003 is only expected to be 1%.

Mr Brown is expected to say that such a weak performance is holding back the growth of the global economy which is hitting the UK.

Higher borrowing

The slower rates of growth, with the accompanying lower tax revenues, are expected to lead to the government having to borrow more.

In last November's pre-Budget report, Mr Brown raised borrowing projections to �24bn for 2003-4 and �19bn in 2004-5.

But a report in the Sunday Times newspaper said the chancellor is set to raise borrowing by up to �5bn in each of the next two years.

The spending deficit is set to rise despite the increases in National Insurance (NI) contributions which started on Sunday.

The increase in NI is being used to pay for higher spending on the National Health Service.

However, some analysts have warned that, even with the latest increase in NI, the government may have to raise taxes in future years if spending plans are to be met.

Stamp duty

Wednesday's Budget may also see stamp duty increased on property transactions worth more than �1m, the Observer said.

The paper said Mr Brown is set to increase the rate from 4% to 5% in a move which could damage the top end of the property market, which has already been showing signs of weakness in recent months.

However, the Observer said the chancellor was set to provide some relief at the lower end of the market by raising the level where duty starts from �60,000.

Stamp duty is also likely to be scrapped from deprived inner-city areas in order to encourage investment there.