Economists question Brown's 'optimistic' forecasts
British Chancellor Gordon Brown found his fiscal targets back in the firing line today after his forecasts for the next year were again dubbed optimistic.
He stuck by earlier growth forecasts but found economists questioning whether his hopes of a £10bn (€14.3bn) improvement in the nation’s finances can be met during the forthcoming financial year.
With the economic cycle due to end in 2006, a planned reduction in the budget deficit from £16bn (€23bn) in 2004/05 to £6bn (€8.6bn) in the following year will be crucial to the Chancellor’s hopes of meeting his golden rule.
Mr Brown is confident he can meet the rule – to borrow only to invest on average over the economic cycle – with an overall margin of £6bn (€8.6bn), narrower than the £8bn (€11.5bn) he forecast at the Pre-Budget report in December.
He has proved experts wrong in the past and pointed out today that GDP in 2004 had been better than most City expectations at 3.1%.
However, economists believe the key golden-rule measure will be tighter to call, as Mr Brown has pinned his hopes on GDP growth of between 3% and 3.5% in 2005 and between 2.5% and 3% in 2006. On average, the City is looking for 2.6% this year and 2.3% in the following year.
Peter Spencer, chief economic adviser to Ernst & Young’s Item Club, said: “There has been quite a marked deterioration in the Chancellor’s forecast of the deficit for this year and it’s really touch and go on his golden rule."
