'Just now, there seems little risk at all in ensuring a more robust recovery by cutting interest rates and making no further tax increases,' said Patrick Minford, the pro-free market economics professor who leads the Liverpool University forecasting group. 'Interest rate cuts should be urgently applied to ending and reversing the recession.' Prof Minford said in his latest quarterly economic bulletin that national output could grow by another 10 per cent before the economy overheated. 'We need 4 to 5 per cent growth as soon as possible, to be sustained for about five years,' he said.
The Liverpool economists raised their forecast of economic growth this year from 1.6 to 1.8 per cent, in line with the Treasury's unpublished summer forecast. They also forecast inflation of 1.7 per cent and a current account deficit of just pounds 8.7bn, little different from last year's.
Professor Minford argued that the Government's borrowing requirement was largely the automatic result of recession, which had depressed tax revenues and increased benefit spending. The PSBR would disappear with recovery, though an excessively slow upturn would leave a 'structural' deficit of accumulated debt interest.
Professor Minford said public spending should be kept tightly under control. 'Policies must be oriented to enhancing competitiveness,' he argued.