Chancellor Alistair Darling yesterday took a relatively rosy view of the UK's ability to withstand global economic troubles, lowering his growth forecasts but not slashing them.

Nevertheless, he hiked his forecasts of public-sector net borrowing over the next four years by £20bn. Excluding the impact of the bail-out of mortgage bank Northern Rock on the public finances, Mr Darling stayed within the government's fiscal rule of borrowing only to fund investment, as opposed to current expenditure, over the economic cycle.

He also met the other key fiscal rule - keeping total net debt at less than 40% of gross domestic product. However, the margin for error is tiny, with net debt now forecast by Mr Darling to rise to 39.8% of GDP in 2010-11. Mr Darling is, meanwhile, predicting the softest of landings for the UK economy, at a time of increasing signs the US is now in recession.

Mr Darling cut his forecast of UK growth during the current calendar year to between 1.75% and 2.25%, from the already reduced projection of between 2% and 2.5% in his Pre-Budget Report (PBR) last October. The consensus in the City is the UK economy will grow by 1.8% this year, at the bottom end of Mr Darling's new range. The UK grew by about 3.1% in 2007.

However, it is in 2009 that Mr Darling's projections get really out of kilter with City forecasts. Even though Mr Darling cut his growth forecast for 2009 from a range of between 2.5% and 3% in the PBR to between 2.25% and 2.75% yesterday, amid a global credit crunch fuelled by massive default on US sub-prime mortgages, he remains much more optimistic than City economists.

The City is predicting growth of about 1.9% next year. Jonathan Loynes, chief European economist at Capital Economics, noted that Mr Darling was also more hopeful than the Bank of England about next year.

Mr Darling's 2009 growth projection signals a confidence the UK will recover swiftly from the impact of the global credit crisis - not taking long to return to a long-term trend rate of expansion generally put between 2.5% and 2.75%. The Chancellor yesterday forecast growth would accelerate in 2010 to between 2.5% and 3%, maintaining his PBR prediction for that year.

Mr Darling highlighted his expectation that net borrowing in the 2007-08 fiscal year, which ends on March 31, would come in at less than his PBR projection of £38bn, to £36.4bn instead.

However, this would still be well above the £33.7bn which Gordon Brown forecast in his final Budget last year. Having already hiked net borrowing forecasts for the next four fiscal years between Brown's 2007 Budget and the PBR last October, Mr Darling raised them significantly further yesterday.

He increased his forecast for 2008-09 net borrowing, estimated by Brown at £30bn a year ago, from £36bn in the PBR to £43bn. The prediction for net borrowing in 2009/2010 was hiked yesterday from the PBR figure of £31bn to £38bn, with forecasts for the following two fiscal years increased from £28bn to £32bn and £25bn to £27bn respectively.

Loynes expressed his surprise, given Mr Darling's relat-ively upbeat outlook on growth, that the Chancellor had raised borrowing projections by as much as he had.

"The fiscal numbers are more realistic than they were," he said. The economist noted Mr Darling appeared to be recognising the "shape of growth" would be less favourable for tax revenues, against a backdrop of a weaker UK housing market, more anaemic consumer spending and poorer City bonuses.

Loynes declared these factors are "worsening the relationship between overall GDP growth and the public finances".

He noted stamp duty projections accounted for much of yesterday's downward revision of forecast tax receipts, adding that this reflected an expectation of fewer transactions in the housing and equity markets.

Loynes also noted an impact on VAT, with more consumer spending on "non-VAT-able" food and energy as households were hit by surging electricity, and gas bills and food costs.

However, although declaring Mr Darling's revised borrowing projections "look more realistic", he added: "I am still concerned that the GDP growth forecasts are too high and risks lie towards weaker growth and even higher borrowing. Our view is borrowing will go up to £50bn per annum and stay there for quite a while. If the economy were to slip into recession, it could go up to £100bn per annum."

Loynes expressed concern that the UK economy was "slowing from a starting point where the government is borrowing nearly £40bn per annum".

He added that, if there is more serious downturn than projected, net borrowing could get to some "pretty scary levels". Loynes voiced fears over the medium-term outlook for the UK economy, even if it bounced back quickly from the impact of the global credit crisis and US troubles.

Seeing a need for tax rises somewhere along the line, he said: "Once we get through this difficult period for the economy, whoever is in charge has got to think about some sort of fiscal consolidation. You can't be in a situation where, even when things are strong, you are borrowing £40bn per annum.

"If we get through the credit crunch, if we get through the housing market slowdown, and the economy starts to pick up, it could get walloped by tax increases."