Deficit expected to halve

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The Independent Online
THE current account deficit is poised to halve to pounds 5.56bn over the next four years, contrary to the consensus view of leading independent forecasters, says Professor Doug McWilliams of the Centre for Economics and Business Research.

Professor McWilliams' latest forecasts for the Chartered Institute of Marketing suggest that the expansion is facing enough constraints to ensure that a 1980s-style import boom will not be repeated. His prediction that the deficit will be cut in two by 1997 conflicts with the independent consensus, which expects it to expand from about pounds 12bn this year to pounds 16bn by 1997. It also runs counter to the fears of many in the City whose recent predictions of a sharp deterioration in the deficit failed to materialise.

In addition to the restraint imposed on consumers by tax increases this year and in 1995, he believes the Bank of England, in effect, runs monetary policy and will raise interest rates sooner than expected to maintain firm downward pressure on inflation.

Gavyn Davies, page 26