Bank 'must print money to fill £12bn gap'

The Bank of England will have to come to the rescue of the Chancellor with more money-printing to help plug a £12 billion shortfall in the public accounts, experts said today.

An FT analysis claimed the UK's structural deficit - the shortfall in the public finances impervious to cyclical ups and downs - will be £12 billion bigger than expected, due to less slack in the economy than previously thought. The analysis signals more permanent damage to the economy from the recession than first estimated.

Barclays Capital chief economist Simon Hayes said: "One way out... is if the Bank did more quantitative easing and allowed everybody to raise their growth forecasts."

Osborne's target is to balance the country's books by 2015-16. The Office for Budget Responsibility currently says that the Chancellor will meet the target a year early, but is set to cut growth forecasts again in November.

Capital Economics' Jonathan Loynes added: "The biggest problem with the economy is a fundamental lack of demand, which will have a much bigger impact on the deficit."