We haven't seen the worst of it. That, in essence, is the verdict of an influential report on the state of the economy published this morning.

The independent Institute of Fiscal Studies warns that the impact of a persistently weak economy on the government's finances means borrowing will rise further than current official plans, many more public sector jobs will have to go, taxes will go up and more spending will have to be cut.

It's a particularly grim assessment and is being presented right now to economists in London.

In a statement published earlier this morning the head of the IFS, Paul Johnson, warned that the promise by the prime minister to protect overseas aid, the NHS and pensioners means cuts of 30 per cent would have to be borne by other government departments.

If defence were protected then other areas would have to slash 35 per cent from their budgets.

The effects of that "look hard to contemplate," says Mr Johnson. Instead, he reckons the NHS and pensioners could be hit after all and taxes are likely to go up after the next election.

The chancellor faces some very unpalatable choices.