President George W. Bush on Wednesday predicted that the US budget deficit would drop to less than half its 2004 peak by the end of the current fiscal year but warned Democrats against loosening constraints on federal spending.

Issuing a mid-year update of the budget outlook, the White House estimated that the deficit would drop to $205bn (€149bn, £101bn) by the end of September, lower than the previous projection of $244bn made in February.