Brussels inflicted a double embarrassment on Alistair Darling yesterday, challenging his economic forecasts as too rosy and starting disciplinary action against Britain for allowing its finances to slide too deep into the red.

In the latest blow to the Chancellor, the European Commission threw its weight behind the attacks of other leading institutions on his upbeat Budget prediction that Britain's economy would rebound strongly next year after a lacklustre 2008.

Brussels cut its forecast for UK growth this year from 2.2 per cent to 1.7 per cent, although this was still just in line with the bottom of the Treasury forecast of 1.75 to 2.25 per cent.

In the latest challenge, however, to Mr Darling's claims that the economy will enjoy a resurgence next year, the Commission also cut its forecast for 2009 to 1.6 per cent.

This is sharply lower than its previous November projection of 2.5 per cent growth and far below Mr Darling's hopes for GDP to expand by 2.25 to 2.75 per cent.

Britain's growth will be dampened by downward pressures in the housing market and turmoil in the financial sector, the Commission argued, but exports are likely to become more competitive because of the dramatic fall in the value of sterling against the euro.

Brussels also said that it expected that British employment growth would slow “to almost zero”, while the unemployment rate was tipped to increase slightly over the next two years.

Brussels coupled its questioning of the Chancellor's economic forecasts with an attack on his financial management, singling Britain out as one of the bad boys of Europe.

The Commission said that the Treasury was set to borrow 3.3 per cent of national income (GDP) in the present 2008-09 financial year and the next, twice breaching the 3 per cent ceiling prescribed under the Maastricht Treaty. The average deficit for the 27 European Union nations this year is, by contrast, set to be only 1.2 per cent of GDP.

Brussels uses a different method of estimating borrowing levels laid down under Maastricht rules, but the Treasury projects that on this basis the UK's 2008-09 deficit will be 3.2 per cent, rather than the expected 2.9 per cent it expects on Britain's own standard accounting method.

Joaquín Almunia, the European Economics Affairs Commissioner, said that Brussels would begin “excessive deficit procedures” to seek a formal rebuke for Mr Darling and Gordon Brown at Ecofin, the EU's council of finance ministers.

“The message for the UK with these forecasts is very clear,” Mr Almunia said. “We are preparing ... to launch a report to start an excessive deficit procedure and intend to present that report for June 11.”

The move is more a political embarrassment for the Chancellor. The procedure is designed to cap budget deficits of EU members, but while fines can be imposed on countries that are members of the euro, there are no real sanctions for EU states outside the eurozone.

Britain will probably escape with a rap on the knuckles.

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