MEAGRE UK growth of 0.3% in the second quarter is ''the final nail in the coffin'' of the Treasury's ambitious 2003 forecast, and the chancellor of the exchequer could miss borrowing targets by tens of billions of pounds, economists said yesterday.

John Butler, UK economist at HSBC, is predicting Gordon Brown will overshoot his borrowing projections by a total (pounds) 34bn during this and the following two fiscal years. He believes this would result in the UK failing to fulfil the conditions of the eurozone stability and growth pact.

However, economists said yesterday that the likely borrowing overshoot did not

mean the chancellor would need to raise taxes before the next general election.

Yesterday's first estimate of second-quarter gross domestic product from National Statistics, although subject to revision, meanwhile revived hopes of further UK interest rate cuts. These hopes had been dampened by strong retail sales data this week.

Although second-quarter growth was ahead of the 0.1% rate in the first quarter, it was adrift of the 0.4% expansion for which the City had hoped.

Jonathan Loynes, at Capital Economics in London, estimated the economy would now have to grow by close to 1% in each of the last two quarters for Brown to meet the mid-point of his 2003 growth forecast of 2% to 2.5%.

Even before yesterday, the average growth forecast in the City for this year had slumped to about 1.8%.

Loynes, although sticking with 1.8%, now sees a risk that even this might not be realised.

He said of yesterday's growth figures: ''They are the final nail in the coffin that Brown might actually achieve the growth prediction for this year. Had we got an upward surprise, rather than a downward surprise, he (the chancellor) might have stood a chance. It would need a dramatic acceleration from the (growth) rates we have seen in the first half of the year.

''It makes his (Brown's) growth forecast for next year - which is 3% to 3.5% - look less likely as well.''

Crucial to Butler's borrowing projections is his expectation that the economy will grow by only 1.7% in calendar year 2004. Growth dictates the Treasury's tax take.

Butler expects Brown to miss his borrowing forecast of (pounds) 27bn for this fiscal year to March by about (pounds) 5bn.

However, predicting an (pounds) 11bn overshoot of Brown's (pounds) 24bn projection for 2004-05 and an (pounds) 18bn overshoot of the chancellor's (pounds) 23bn target for 2005-06, Butler said: ''The big news is going to be next year and the year after.''

Loynes predicts the chancellor will overshoot his borrowing projections by (pounds) 7bn this fiscal year and by (pounds) 8bn in 2004-05.

However, Loynes believes Brown will not have to raise taxes before an election which could come in two years' time. He believed uncertainty over what constituted the ''cycle'', in terms of Brown's golden fiscal rule of borrowing only to finance investment over the cycle, would give the chancellor ''elbow room''.

Butler said of Brown: ''He wouldn't have pressure to raise taxes until 2007 at the earliest. Even if the worst comes to the worst, I think he would ditch the golden rule rather than raise taxes ahead of an election.''

Touching on the eurozone, Butler said: ''The danger is the stability pact - if it is still there. The UK (government deficit) will be above 3% of GDP, with no forecast for getting back to balance. By rights, if we were abiding by that, we would be fined. We would be in the same position as Germany and France.

''I think, by 2005, the UK deficit is going to be bigger than that in Europe. It is going to be in the region of 3.5% of GDP.''

The anaemic second-quarter growth pushed the year-on-year rise in GDP down from 2.1% in the first quarter to 1.8%.

Butler warned the data showed the economy was ''hugely unbalanced'' - even more than thought previously - and that debt-laden consumers could not be relied on any more to ensure growth.

He compared 1.6% growth in retail sales during the second quarter with the 0.3% rise in overall GDP. He was also disappointed the service sector grew only 0.4% in the second quarter - taking this as further evidence that much of the increase in public spending was going on higher wages.

National Statistics estimated manufacturing output was unchanged in the second quarter - following declines during most of the previous two years.

butler believes UK interest rates will have to be cut to 2.75% by the first half of 2004, to weaken sterling and try to ensure the industrial recovery comes through.