Chancellor of the Exchequer Alistair Darling met his Budget borrowing forecasts yesterday, according to official data, but City analysts warned of tougher times ahead for the public finances as the economy slides into a downturn and perhaps even a recession.

Chancellor of the Exchequer Alistair Darling met his Budget borrowing forecasts yesterday, according to official data, but City analysts warned of tougher times ahead for the public finances as the economy slides into a downturn and perhaps even a recession.

The Office for National Statistics said net borrowing of £35.6bn in the year to March was below the £36.4bn that he predicted in last month's Budget but £5.5bn more than in the previous 12 months.

However, economists said the government would have difficulty in meeting this year's borrowing target of £43bn because the slowing economy would erode tax revenues.

The Institute for Fiscal Studies has said the government has almost no room for manoeuvre if it is to meet its self-imposed fiscal rules.

Howard Archer, chief UK economist at Global Insight, said: "The bad news is that the public finances in March were significantly weaker than a year ago, and Mr Darling looks increasingly unlikely to be able to achieve his fiscal targets for 2008-09 given the deteriorating economic outlook."

The Chancellor has based his forecasts on growth of between 1.75% and 2.25% this year, although most economists have taken a darker view of the UK's prospects this year. The International Monetary Fund last week predicted an expansion of 1.6%, the weakest since 1992, the year after the UK had its last recession.

Archer - who also expects growth of 1.6% - said the downturn would have a negative impact on government receipts from corporation tax and VAT, with a cooling housing market also limiting stamp duty revenues.

He added: "Significant corrective action seems certain to be required once the economy is on a firmer footing to get the public finances back in a healthy, sustainable condition."

Further evidence of the property slowdown emerged yesterday when the Council of Mortgage Lenders said the value of home loans fell 17% in March from a year earlier.

More ONS figures next week are likely to show the pace of economic growth in the UK slowing for the third quarter in a row, while official inflation remains stubbornly above target at 2.5%.

The ONS report showed the government achieving its "sustainable investment" rule - where net debt is kept below 40% of GDP - with the measure standing at 36.7%.

But economists pointed out this figure does not include an estimated £100bn in debt taken onto the public balance sheet from the nationalisation of mortgage lender Northern Rock in February, which the ONS said would be included in official figures from next month.

On a more positive note, the cash measure of borrowing - the public sector net cash requirement - came in much lower than expected in March at £12.66bn.

Reflecting the lower financing need, the Debt Management Office said it would cut Treasury bill sales by £6.7bn this year.

In a separate report, the Bank of England said annual growth in M4, the broadest gauge of UK money supply, slowed to 12% from 12.4% in February.