UPDATE 1-UK fiscal watchdog official says Reeves pre-budget speech was not misleading

British finance minister Rachel Reeves was not misleading in comments she made about the tough budget situation she faced which have been attacked by opposition lawmakers, an official from Britain's fiscal watchdog said on Tuesday. In a speech on November 4, Reeves appeared to lay the groundwork to raise income tax rates which would have broken the Labour Party's promise to voters before the 2024 election.

She cited a "weaker than previously thought" productivity forecast by the Office for Budget Responsibility - whose projections underpin government budgets - but did not mention higher OBR tax revenue forecasts which offset it. Political opponents have accused Reeves of misleading the public in the run-up to the budget and seeking to find a reason to raise taxes to justify an increase in welfare spending, a charge she denies.

'NOT MISLEADING' TO CALL FISCAL SITUATION VERY CHALLENGING Reeves last week announced 26 billion pounds ($34.3 billion)in tax increases to remain on track to meet her fiscal targets and fund an increase in welfare for families with children.

David Miles, a member of the OBR's Budget Responsibility Committee, said the forecasts shared with Reeves before her speech on November 4 showed she had a "wafer thin" buffer for meeting her fiscal targets and the costs of a u-turn on welfare savings had not been included at that stage. "I don't think it was misleading for the chancellor to say that the fiscal position was very challenging at the beginning of that week," Miles told lawmakers on parliament's Treasury Committee.

However, Miles questioned briefings given to media later in November in which unnamed government sources said the government could avoid raising income tax rates in the budget thanks to improvements to the OBR's economic forecasts. British government borrowing costs fell sharply in the bond market after those briefings.

"It certainly didn't reflect anything that was news from the OBR being fed into the government," Miles said, saying the changes in the watchdog's forecast rounds were small. ROW OVER FORECASTS

The OBR last week took the unusual step of publishing a letter setting out how those forecasts had evolved. Miles said the agency felt it had to explain the process and show it was not behind the sharp changes in expectations about the budget.

"The letter really was to try and remove misconceptions about the OBR being either the patsy that was doing what the government wanted, or that through its own fickle behaviour changing from one day to the next... that was making it virtually impossible for the government," he said. The Treasury responded frostily to the letter last week, saying it welcomed the OBR's confirmation that such explanations would not become usual practice.

The chair of the Treasury Committee, Meg Hillier, said lawmakers would discuss the early release of the OBR's economic and fiscal outlook report - which included all the key details of Reeves' budget - at a future date. The OBR's chair, Richard Hughes, resigned on Monday after an investigation by the agency into the lapse found fault with the leadership of the watchdog. ($1 = 0.7583 pounds) (Writing by Andy Bruce Editing by William Schomberg, Alexandra Hudson)

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