Economy growth trend rises as Brown prepares for Budget

THE BRITISH economy's trend rate of growth has risen, according to a Treasury paper published this morning on the eve of Gordon Brown's Pre-Budget Report. It estimates that GDP can grow at 2.5 per cent a year on average, rather than the 2.25 per cent assumed previously.

However, the forecasts of the public finances presented in tomorrow's statement by the Chancellor will continue to be based on the lower figure. The spending review next year to set departments' expenditure plans for the following three years, 2001/02 to 2003/04, will also be based on the cautious figure.

The Treasury said a cautious view would be taken for all fiscal planning. "The forecasts will be kept on a prudent basis," he said. Sticking to the cautious 2.25 per cent trend growth assumption for the public finances means the surplus of revenues over spending will be several billion pounds higher than if the 2.5 per cent figure were used.

The fiscal rules require the Chancellor to balance current spending over the course of the business cycle, so a surplus as the economy expands is needed to offset deficits during the downturn.

Business will welcome continued prudence, as any relaxation would put more pressure on interest rates. However, it will give more ammunition to critics who claim Mr Brown is building up a pre-election "war chest".

The Treasury's new, more optimistic assessment of the economy's long- term potential does not depend on assuming there has been any kind of "productivity miracle". Measures to boost productivity will be at thecentre of the Chancellor's statement tomorrow.

Treasury forecasts in the late 1980s fell into the trap of revising trend growth up as high as 3 per cent only to find it was a temporary, cyclical improvement that later went into reverse. Monetary and fiscal policy then had to tighten sharply, having been too set loose on the assumption the economy could sustain higher growth.

Rather, the main reason for today's upward revision is faster growth in the working-age population combined with a higher employment rate amongst that demographic group. Stable growth and lower unemployment thanks to a range of jobs market measures mean the proportion of people of working age who are in work has risen.

The new economic forecasts presented tomorrow will be a range centred around the new 2.5 per cent trend, with the lowest figure used to set tax and spending and the higher figure indicating the potential for improvement.

Treasury economists hold out the hope of future upward revisions to the trend growth rate if evidence of a permanent improvement in productivity does emerge. Even a small improvement in productivity compounds into a big change in living standards after a number of years.

During the past 20 years productivity - GDP per worker - has grown on average by just under 2 per cent a year. The paper lists a number of reasons for hoping this might improve, including new incentives for investment and enterprise announced in previous Budgets and the possibility that technological change will boost growth.

News Analysis, page 16

Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Voices
voicesSiobhan Norton on why she eventually changed her mind
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
Extras
indybest
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
Life and Style
tech
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.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn