LONDON, 28 March 2003 — Chancellor of the Exchequer Gordon Brown raised yesterday Britain’s budget for war in Iraq to three billion pounds ($4.7 billion) from 1.75 billion.

“I am allocating today a further 1-1/4 billion pounds to increase the special reserves to three billion to be drawn by the Ministry of Defense as necessary for action in Iraq,” the British finance minister told parliament. Brown also said he was allocating the government’s Department of International Development an extra 120 million pounds for emergency aid work in Iraq.

Brown had previously earmarked 1.75 billion pounds for the war. That was already a rise from the one billion he set aside last November and comes on top of the 26 billion pound defense budget that has been steadily rising in recent years.

The chancellor’s standing pledge to spend “what it takes” on the military campaign means his annual budget the eventual cost could be higher still, economists say.

Brown will produce his annual budget on April 9. “I think the whole House will want to make clear our gratitude to our armed forces and our determination to see they are fully supported,” he said.

The Iraq war looks set to last longer than the few days or weeks that many optimists first assumed.

The figures Brown announced yesterday do not cater for the unfathomable costs of humanitarian aid for and reconstruction of Iraq after conflict ends.

Meanwhile, Britain’s economy grew by an unrevised 0.4 percent in the final quarter of last year, official data showed yesterday, but the full year 2002 was a bit stronger than previously estimated.

The Office for National Statistics said the world’s fourth largest economy grew by 2.2 percent in the fourth quarter from the same period a year earlier, a touch higher than it had estimated last month.

The full year figure was also revised up to 1.8 percent from 1.6 percent. That remains the weakest performance in a decade but was relatively strong given that major economies around the world were on the brink of recession. The euro zone economy, for example, grew just 0.8 percent last year.

The ONS said it had revised up the GDP number for 2002 as a whole because of a stronger estimate for transport and storage and financial services as well as higher investment spending.

The deficit in net exports worsened in the fourth quarter to 17 billion pounds from 14.2 in the third, the ONS said. The increase in the deficit reduced GDP growth by 1.3 percent.

But the breakdown of the data showed that total domestic demand, driven by upwardly-revised consumption, investment and government spending, rose by 1.6 percent on the quarter, the best performance since the second quarter of 2000.

In a hint as to why the housing market and consumption are now slowing down, however, the data showing households’ disposable income only grew 2.3 percent last year after a surge of nearly seven percent in 2001.

Economists said that overall the data were slightly better than they had been but would have little effect on monetary policy since they were backward-looking.

Most also expect growth in the first quarter of this year to come in weaker than the fourth as retail sales and manufacturing output have been disappointing.

They expect the economy this year to only manage to grow by a similar amount to the 1.8 percent it managed in 2002 in spite of the Bank of England having cut interest rates to a 48-year low of 3.75 percent in a bid to keep the economy rolling.

“The risk of a weaker growth out-turn in the current quarter encourages us to stick with our view of another 25 basis points off rates by May,” said George Buckley at Deutsche Bank in London.

“A further cumulative 50 basis points should be trimmed from base rates by either late 2003 or early next year,” he added.

Separately, the ONS said the current account deficit for the fourth quarter of 2002 widened to 3.1 billion sterling from a downwardly-revised 1.1 billion in the third. But it was better than the 4.6 billion figure expected by City economists.

A higher balance of trade on services and strong investment income helped offset a big rise in the goods trade deficit caused by the strength of the pound.

For the calendar year, the deficit narrowed sharply to 8.7 billion pounds from 12.5 billion in 2001.

That means that in spite of several years of currency strength, the country’s current account deficit is less than one percent of GDP.