(adds NIESR budget call)
* UK annual budget to take place on April 22 at 1130 GMT
* Darling expected to say economy will shrink by 3-3.5 pct
* Budget deficit to soar to around 160 billion pounds, gilt
issuance to hit record high
* Darling set to announce 2 bln stg jobs package
By Sumeet Desai
LONDON, April 20 (Reuters) - British finance minister Alistair Darling looks set to ramp up public borrowing to at least 160 billion pounds this year as he admits the economy will shrink at its fastest pace in over 60 years.
With an election due by June 2010 and the ruling Labour Party far behind in the polls, Darling's second annual budget on Wednesday will stress recovery should come by year-end and will surely contain some headline-grabbing sweeteners.
"We've got to plan for the future, to invest in Britain's future to ensure that we can take advantage of the recovery when it comes, and it will come," Darling said in a video clip posted on the Treasury's website.
That won't hide the bad news. Darling will likely forecast an economic contraction of 3-3.5 percent in 2009 and the budget deficit hitting a post-war record of perhaps 12 percent of GDP as Britain suffers its first recession since the early 1990s.
His budget statement, likely to be the gloomiest in a generation, will also come just hours after new figures are expected to show another 120,000 people signed on for unemployment benefits last month.
The dire state of the public finances, however, means that the government can't splash out in the way it did in the November pre-budget report which contained a 20 billion pound package fiscal stimulus package, including a cut in sales tax.
Still, government sources told Reuters at the weekend that Darling would likely put 2 billion pounds into schemes aimed at getting people, particularly the young, back to work and another 500 million pounds into environmental initiatives.
The political imperative of an election means that further significant crowd-pleasing initiatives may also be in the pipeline. Prime Minister Gordon Brown desperately needs to regain the initiative after a scandal over emails sent by one of his aides have dominated headlines for more than a week.
The National Institute for Economic and Social Research said on Monday there was room for a temporary stimulus of as much as 30 billion pounds to get the economy moving again.
"The only wise options left are significant and immediate income tax and employers' national insurance rebates," the think tank said.
TIGHTENING AHEAD
Whatever the cost of any discretionary measures, markets are already braced for a record amount of government bond issuance. A Reuters poll of market-makers showed they expected on average 180 billion pounds of gilts to be issued in 2009/10.
With such a huge funding gap and the memory of last month's failed gilt auction still in mind, Darling will be keen to show the public finances getting back to a more sustainable path in the future.
So expect talk of more efficiency savings and officials say this could amount to some extra 10 billion pounds. There may also be warnings that spending growth will have to be curtailed savagely once the recession is over.
There are also likely to be further measures to crack down on tax avoidance, such as naming and shaming of persistent offenders.
The government has already announced a new higher tax rate for people earnings over 150,000 pounds from 2011.
Further tightening measures may also be flagged up to instill market confidence and also entrap the opposition Conservatives who will either have to go along with the tax hikes or say where they will find the shortfall.
Officials are still debating over whether or not to go ahead with a scrappage scheme to benefit the motor industry where consumers buying new cars would be given rebates for old ones.
That could be one of a host of micro-measures designed to alleviate the effects of the recession and there has also been talk of measures to help savers who are being hurt by the Bank of England cutting interest rates to a record low.
Darling is also expected to outline an estimate of losses the government expects to take from the banking bailout last year and officials say this could come close to 60 billion pounds.
For a factbox on expected budget measures, click [ID:nLK664976]