London - The British economy is expected to shrink by 3.5 per cent this year as public debt levels rise to a record 175 billion pounds (255 billion dollars), the government forecast Wednesday.

Presenting the annual budget for 2009/10, Chancellor of the Exchequer, Alistair Darling, acknowledged in parliament that Britain was facing the "deepest recession since the Second World War."

Public sector net borrowing will amount to 12.4 per cent of gross domestic product (GDP) this year, and fall slightly to 173 billion pounds in 2010, said Darling.

He expected the current state deficit to be halved within four years and said the British economy would "grow again by the end of this year."

Darling said that among measures aimed at stimulating the economy the government would introduce a car scrappage scheme for older vehicles next month to encourage the sale of new cars.

Britain was the first major European country to a launch a massive bail-out package for banks at the height of the credit crisis last autumn. (dpa)