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Last Updated: Tuesday, 25 January, 2005, 20:50 GMT
US budget deficit to reach $427bn
US flag with superimposed dollar bills
The twin budget deficits have caused market jitters
The US budget deficit is set to reach a record $427bn (229bn) in 2005, the White House has predicted.

But officials said the administration would meet its pledge to cut the deficit in half over five years, partly by controlling public spending.

The forecast takes account of an extra $80bn the White House is seeking from Congress to fund military operations.

It comes as a non-partisan watchdog said the 2005 deficit, not including military costs, would be $368bn.

The Congressional Budget Office (CBO) had previously forecast a $348bn shortfall in the 2005 fiscal year.

The US budget deficit hit $412bn in the 12 months to 30 September 2004, after reaching $377bn in the previous fiscal year.

'Orderly decline'

Republicans have blamed the size of the deficit on slow economic conditions after the 11 September attacks and ongoing military operations in Iraq and Afghanistan.

The Democrats, meanwhile, have accused the president of excluding Iraq-related costs from previous budgets to meet the aim of reducing the deficit, a charge which the administration denies.

In recent months, the dollar has weakened amid market jitters about the size of the budget and trade deficits.

In November, the gap between US exports and imports widened to more than $60bn, a record figure.

The CBO says it envisages a further "orderly" decline in the greenback over the next two years as the twin deficit drives dollar investors away.

But it notes the declines will help exporters and boost US economic growth.

The CBO also forecast a total budget deficit shortfall of $855bn for the years from 2006 to 2015 - an improvement on previous projections.

However, analysts say the new figures fail to take into account the potential $2-$3.8 trillion costs of the president's plan to revamp state pensions and extend tax cuts. The figure could also be worsened by any further military costs.

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