Budget `97: Doomsday worries grow

The Economy: ECONOMIC FORECASTS

Economic growth and consumer spending will fall slightly next year, leading to only a small rise in inflation, according to the Treasury's summer economic forecasts for 1997 and 1998 announced by Chancellor Gordon Brown in his Budget speech yesterday.

At the same time the Chancellor warned that accelerating consumer spending could lead to "unbalanced growth" and the risk of higher inflation in the economy.

But leading City economists, expressing deep disappointment at the Budget's "lack of bite", and warned that interest rates would have to rise almost immediately, fuelling the strength of the pound and further hurting manufacturing and exports.

The Treasury's economic predictions for the next two years paint a picture of a gently slowing economy and a rapid improvement in government finances. Gross domestic product will grow by 3.25 per cent this year, falling to 2.5 per cent next year, according to the Government's public finances Red Book, published after the Chancellor's speech.

At the same time, inflation will rise slightly from this year's 2.5 per cent to 2.75 per cent next year before falling back to 2.5 per cent - the Government's long term inflation target - in 1999.

The Chancellor estimated that consumer spending would be 4.5 per cent in 1997, falling to 4 per cent next year. "With the prospect of further windfalls from the building societies, consumer spending is likely to remain strong," he said.

Economists interpreted the figures as at best an optimistic picture of the economy which may come to pass in the medium term and at worst a worrying lack of action to address the structural weaknesses.

"I am surprised that the Chancellor managed to identify the potential inflationary problems affecting the economy and yet his Budget failed miserably in addressing them," said Jonathan Loynes, an economist at HSBC James Capel.

"The prime reason for the Budget should have been raising taxes to cool down the consumer sector and rebalance the economy. Now the only way to achieve this balance will be through interest rate rises," Mr Loynes added.

Economists remain concerned about the possibility of the economic "doomsday scenario". They see rampant consumer spending, partly fuelled by windfall cash, combined with manufacturing weakness leading to a damaging outbreak of inflation in the economy. Such a scenario would also lead to more interest rate rises and further strength in sterling, damaging the competitiveness of exporters.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Up and away: rates will rise but your mortgage won't escape its moorings with a long-term fix

Is a 10 year mortgage deal a fix too far?

A cut-price deal for a decade-long home loan - where's the problem? Only, says Simon Read, that circumstances can change and it won't be easy to get out
In a surprise move the Tories have decided against putting a career politician into the job. Instead they’ve handed the responsibility to campaigner Ros Altmann

New pensions minister has massive job on her hands

The Tories have appointed campaigner Ros Altmann to the post

Promises, promises: David Cameron talks to staff at Asda's head office in Leeds today

General Election 2015: How you vote next week could affect your finances

Rival party pledges could shrink your savings or grow your nest egg
Logos for the 'Big Six'; energy companies (top row from left) British Gas, EDF, RWE npower, (bottom row from left) SSE, E.ON and ScottishPower

Winter heating underpayment brings summer pain

One reader’s monthly direct debit charge has been increased by 62 per cent

Almost 15,000 people died last winter through living in cold homes that they couldn’t afford to heat

Social tenants locked into energy tariff for 40 years

Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier

Will your credit card rewards be scrapped following new EU rules on charges?

Providers are unhappy with new EU rules - but ultimately it is customers who will have to foot the bill
There remain more than a million unclaimed Premium Bond prizes worth collectively around £48m

Have you won £1m in the May Premium Bonds draw?

More than £60m was paid out to more than 2 million prizewinners this month

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks

Beware credit card firms’ odious tricks

Why can’t we just have open and honest charges, without all the cross-subsiding?

The pound’s recent strength against the euro could be hit by economic uncertainty under a new government

How planning can make your travel cash go further

With the pound at a high against the euro, it pays to buy now before uncertainty post-election

Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

Pension freedoms: How to deal with cold calls from scammers

Sean O'Grady offers advice on keeping your money safe
Switching to a better bank account is much easier than it used to be

More people are switching current accounts – but what do the figures mean?

Experts disagree about the 7% increase over the past year

The chance of getting what appears to be free money can be hugely attractive, especially to first-time buyers who can be fooled into thinking it’s extra cash to buy the essential new items they need for their dream home.

Beware the boom in cashback mortgage deals

Too many mortgages are being sold with misleading gimmicks

The firm’s revenues slumped by a third to £217 million in a disastrous 2014

Wonga results could get even worse this year, chief admits

The firm’s revenues slumped by a third to £217 million in 2014

The cost of a buildings policy has dropped by 10.1 per cent over the year, with the cost of a contents policy falling by 8.2 per cent

Simon Read: Mild winter cuts the cost of home insurance

The average quote for a buildings and contents policy has fallen by 3.6 per cent

Don't count your retirement money yet: employers will stop receiving a pension rebate next year and their staff may lose out

Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket

Employees in defined-benefit schemes are held up as the lucky ones, but the state pension scheme will be overhauled in April 2016
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Guru Careers: Graduate Editor / Editorial Assistant

    £16 - 20k: Guru Careers: A Graduate Editor / Editorial Assistant is needed to ...

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Day In a Page

    Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

    Please save my husband

    As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada
    Birthplace of Arab Spring in turmoil as angry Tunisians stage massive sit-in over lack of development

    They shall not be moved: jobless protesters bring Tunisia to a halt

    A former North African boom town is wasting away while its unemployed citizens stick steadfastly to their sit-in
    David Hasselhoff's new show 'Hoff the Record': What's it like working with a superstar?

    Hanging with the Hoff

    Working with David Hasselhoff on his new TV series was an education for Ella Smith
    Can Dubai's Design District 'hipster village' attract the right type of goatee-wearing individualist?

    Hipsters of Arabia

    Can Dubai’s ‘creative village’ attract the right type of goatee-wearing individualist?
    The cult of Roger Federer: What is it that inspires such obsessive devotion?

    The cult of Roger Federer

    What is it that inspires such obsessive devotion?
    Kuala Lumpur's street food: Not a 'scene', more a way of life

    Malaysian munchies

    With new flights, the amazing street food of Kuala Lumpur just got more accessible
    10 best festival beauty

    Mud guards: 10 best festival beauty

    Whether you're off to the Isle of Wight, Glastonbury or a local music event, we've found the products to help you
    Unai Emery’s passion for winning and eye for a bargain keep Seville centre stage in Europe

    A Different League

    Unai Emery’s passion for winning and eye for a bargain keep Seville centre stage in Europe, says Pete Jenson
    Amir Khan and James DeGale’s remarkable Olympic performances were just the start of an extraordinary journey - Steve Bunce

    Steve Bunce on Boxing

    Amir Khan and James DeGale’s remarkable Olympic performances were just the start of an extraordinary journey
    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf