Britain's Osborne to launch new fiscal watchdog

By Sumeet Desai

LONDON, May 17 (Reuters) - New British Finance Minister George Osborne on Monday will launch a new fiscal watchdog to ensure the government is held to account on how it tackles the record budget deficit.

The independent Office for Budget Responsibility will be headed by former Bank of England Monetary Policy Committee member Alan Budd, according to plans made by Osborne's Conservative Party before this month's election.

Britain's budget deficit is running at close to 12 percent of GDP, similar to that of crisis-hit Greece, and the new Conservative/Liberal Democrat coalition government has said bringing it down is a priority.

Osborne, who became Britain's youngest Chancellor of the Exchequer or finance minister in 120 years last week, has promised an emergency budget within 50 days of taking office and the OBR will be charged with giving independent advice for it.

It will be expected to publish fiscal forecasts at least twice a year around the time of the budget and pre-budget report, based on existing government policy at the time.

And it will also have to come up with a recommendation for the amount of net fiscal tightening or loosening it judges necessary for the Treasury to have a better than 50 percent chance of achieving a mandate set by the chancellor.

While the government would not have to follow that recommendation, the finance minister would have to explain why not to parliament.

The coalition government has also promised to take an extra 6 billion pounds out of the economy in the current fiscal year beyond what was planned by the outgoing Labour government.

Treasury officials have been working hard over the last month during the election campaign to identify possible cuts but Osborne is expected to shy away from announcing them just yet.

Conservative Prime Minister David Cameron said on Sunday that his party and the Liberal Democrats were still hammering out a fuller coalition agreement expected in the next couple of weeks and Osborne may want to wait until then.

But markets will be keen to see details of any fiscal tightening as quickly as possible and Bank of England Governor Mervyn King warned last week that the ongoing crisis in the euro zone has made it even more urgent the new government gets to grips with the yawning budget gap.

(Reporting by Sumeet Desai; editing by Diane Craft) Keywords: BRITAIN OSBORNE/ (Reuters messaging: [e-mail]; [phone]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.