THE City is expecting a net increase of about #4000m in taxes, excluding the windfall tax on utilities, in Gordon Brown's maiden Budget this afternoon.

The Chancellor of the Exchequer has come under pressure from the business and financial communities to increase taxes on the personal sector to help take the heat out of the spending boom, but his tax hike is likely to be split between the consumer and corporate sectors.

Tightening the fiscal stance would take some of the pressure off the Bank of England to raise interest rates and perhaps check sterling's year-long rise on the foreign exchange markets.

However, most independent economists believe that rates will have to rise further, whatever action Mr Brown takes in the Budget.

The Bank of England's monetary policy committee meets next week, but, after raising rates at its first meeting last month, it is expected to stay its hand until August.

The Purchasing Managers' Survey pointed to a slow- down in manufacturing activity last month as the strong pound took its toll on export business.

The Purchasing Managers' Index fell from 54.4 in May to 53.4 in June, indicating that the manufacturing sector had expanded for the thirteenth month in a row, albeit at a slower pace.

The orders and output indices also retreated, though independent economists maintained that the readings remained at high levels.

The prices index rose from 42.1 in May to 43.5, still suggesting that producer input prices are declining on the back of sterling's strength.

The City thought that the Purchasing Managers' Index reinforced the case for tax increases in the Budget.

The Chartered Institute of Purchasing and Supply said: ''The main source of new business was the domestic mar-ket, with the strength of the pound again reported to have significantly subdued foreign demand.''

But export orders did not stagnate. Indeed, they rose modestly due to the continued strengthening of economic growth in overseas markets, the institute added.

Total order levels showed significant growth.

Purchasing managers re-ported further growth in output to meet the rise in order books.

However, although more than a quarter of all firms raised production during the month, the rate of growth slowed compared to that recorded in May.

The deceleration was in part attributable to an increased incidence of firms deliberately reducing stocks of finished goods in order to cut costs, the institute said.

One in five firms recorded a fall in prices compared with May. The strength of the pound was again the principal factor behind falling input prices through its continued deflationary effect on the price of imports.

David Walton, senior economist at Goldman Sachs, said: ''The PMI index remains at a very high level, suggesting that the recovery in manufacturing is still on track despite the strength of sterling.

''The latter is helping keep cost pressures very subdued. Although the output and new orders indices have fallen slightly, they are still strong.

''With other business surveys suggesting that business confidence remains high in manufacturing, and, especially, in services, and with signs of strong growth in retail sales and a tightening labour market, the Bank of England seems set to continue raising interest rates in the next few months despite the strength in sterling.''

Mr Walton forecast a quarter-point increase at the August monetary meeting.

David Bloom, UK economist at HSBC James Capel, said: ''The big question that still remains unanswered is: why is sterling's meteoric rise not yet having a major impact on the real economy?

''Input, output, and import prices have and are still adjusting downwards, yet after nearly 12 months of a major bull run, the real economy has only been hit on the margin.''

He added that when sterling did eventually bite, the deterioration in the current account of the balance of payments would be swift and vicious, though currency effects might be mitigated by a pick-up in world trade and manufacturing accounting for only 20% of the economy.

''Either way the long and variable lags inherent in the economy will prove problematic for both policymakers and economic forecasters alike,'' he said.