The jury is still out on whether the government will meet its budget targets in five years but it will reduce its debt burden and hold on to its coveted top-notch credit rating, a Reuters poll found on Tuesday.

The poll, taken ahead of Chancellor George Osborne's budget statement on Wednesday, saw only the narrowest majority of respondents, 15 of 29, saying the government would balance its cyclically adjusted budget by the 2016/17 financial year.

But a far greater proportion, 23 of 29, said the state's debt-to-gross domestic product ratio would have fallen by then.

We believe the chancellor should meet his medium term fiscal targets but his margin of error is small relative to the uncertainties involved, said John Hawksworth at PwC.

The coalition government has said it intends to eliminate the underlying budget deficit within five years and to put public debt as a proportion of GDP on a downward trajectory. Lukewarm - if any - economic growth has made those goals harder to meet.

Britain's economy contracted 0.2 percent in fourth-quarter 2011 and with only lacklustre growth predicted for the current quarter, the country risks sliding into a new downturn.

It is probably a stretch to say that all's well. Borrowing remains extremely high and the fiscal targets are only met by a whisker on current projections, said Philip Rush at Nomura.

The ructions over budgetary fine-tuning seem comedic, hence our casting of this budget as a tragicomedy.

The Bank of England has already slashed rates to a record low of 0.5 percent and injected 325 billion pounds ($516.5 billion) into the money supply to stimulate growth, giving it little room to manoeuvre.

The financial crisis has left Britons poorer and the Conservative/Liberal Democrat coalition faces a dual challenge - implementing the tough austerity measures while also trying to support the economy as unemployment runs at a 16-year high.

Ratings agencies Moody's Investors Service and Fitch Ratings have both warned in recent weeks that Britain is at risk of losing its AAA credit rating in the next couple of years if the government relaxes its debt cutting measures.

Fitch revised down its outlook to negative last week, a month after Moody's made a similar move, warning Britain faced a greater than 1-in-2 chance of losing its top-notch status.

The poll gave only a one-in-four chance that Britain would be downgraded, down from a 27.5 percent chance given in a poll taken last month.

There is a chance they will lose it. The economy will underperform government forecasts which will then cast doubt on the medium-term deficit profile, but for now the chances are we are just put on negative outlook, said Citi's Michael Saunders.


The government will need to borrow 121 billion pounds in the financial year ending in March, less than the 127 billion predicted by Britain's fiscal watchdog, the Office for Budget Responsibility, back in November, the poll found.

Its borrowing will drop to 115 billion pounds in the next financial year and to 100 billion the year after, the poll found.

But next year's requirement could be far less as Osborne will also use a 28 billion pound asset transfer from taking on the Royal Mail's pension fund to pay down government debt, a government source said on Sunday.

The transfer of the state-owned mail company's pension scheme would significantly reduce the government's budget deficit next year and mean borrowing is likely to fall below 100 billion pounds for the first time since 2008/9.

Osborne is reported to be keen to issue a new 100-year, or even perpetual bond, to lock in interest rates that are close to historically low levels, but 17 of 26 respondents in the poll said the government was unlikely to press ahead with the idea.

The bonds attracted scant support last week from investors who saw little incentive to buy into low yields with an underlying threat of inflation.

The National Association of Pension Funds (NAPF), which represents pension schemes with assets totalling 800 billion pounds, said most funds would not be interested in such gilts.

Bonds with a maturity of more than 50 years are rare. Mexico and the Massachusetts Institute of Technology are among the few issuers of 100-year bonds. While pension funds are the mainstay of demand for long-dated government bonds, a maturity of 100 years would outlast the liability of most funds.

I think they will find when they sound out the market there isn't much demand for it. It's too long, it goes three generations into the future, said Stephen Lewis at Monument Securities.

(Polling by Shaloo Shrivastava and Deepti Govind, Editing by Andy Bruce and Tim Pearce)