Ernst & Young Item Club predict interest rate rises

The Government will have to raise interest rates further next year, but will not have scope for big tax (20) cuts in the 1995 Budget, according to an analysis carried out using the computer model of the economy which (40) Treasury officials use to advise the Chancellor of the Exchequer.

The Ernst & Young Item Club, a group of (60) independent economists who use the Treasury model, predict that economic growth will slow from 3.8 per cent this year (80) to 3.2 per cent in 1995 and tight budgetary policy and rising interest rates slow the pace of recovery. (100) Item predicts that the overall stance of policy will cut spending in the economy by 1 per cent next (120) year, having boosted it by 0.6 per cent in 1994.

Prospects for unemployment meanwhile look better than at any (140) time for five years, according to a survey by Manpower. It found 18 per cent of employers expecting to (160) take on staff in the first quarter, compared to 16 per cent expecting to shed them. Manufacturers are now (180) more optimistic than service sector employers.

The Item report says that to achieve his target of holding underlying inflation (200) below 2.5 per cent by the time the next election is due in early 1997, the Chancellor will have (220) to slow the pace of economic growth to 2.5 per cent a year. "The 1 1/4 per cent increaes in (240) base rates since September will need to be followed by further tightening, of at least the same magnitude, before (260) the economy will slow and interest rates can peak", the report stated.

But inflation is expected to stay low naturally (280) during 1995, as consumers continue to resist paying higher prices in the shops. Companies are expected to find further (300) cost savings by boosting productivity - the amount of output they produce for each person they employ. As long as (320) productivity grows more quickly than wages, companies will find that they having falling labour costs with which to offset (340) higher raw material prices.

The Item Club said that the Government's public spending plans looked too ambitious by assuming (360) that expenditure will only keep pace with inflation up to 1997/8. This means that tax cuts will have to (380) be paid for by increasing the amount the Government has to borrow, which could go down badly in the (400) City.

Item predicts a £6bn tax cut in total, equivalent to 3 pence of the basic rate of income (420) tax and a 1 per cent boost to personal incomes. "This significant contribution to income growth, coming as monetary (440) policy cycle peaks in late 1995 and a fall in unemployment below 2 million, should significantly improve the prospects for (460) consumer spending in 1996". The Government is expected to have to borrow £20bn in 1996/7, rather than the £13bn predicted (480) in the Budget and so on and so forth eco babble kind of thing that makes about 500 words or so (500).

The Government will have to raise interest rates further next year, but will not have scope for big tax (520) cuts in the 1995 Budget, according to an analysis carried out using the computer model of the economy which (540) Treasury officials use to advise the Chancellor of the Exchequer.

The Ernst & Young Item Club, a group of (560) independent economists who use the Treasury model, predict that economic growth will slow from 3.8 per cent this year (580) to 3.2 per cent in 1995 and tight budgetary policy and rising interest rates slow the pace of recovery. (600) Item predicts that the overall stance of policy will cut spending in the economy by 1 per cent next (620) year, having boosted it by 0.6 per cent in 1994.

Prospects for unemployment meanwhile look better than at any (640) time for five years, according to a survey by Manpower. It found 18 per cent of employers expecting to (660) take on staff in the first quarter, compared to 16 per cent expecting to shed them. Manufacturers are now (680) more optimistic than service sector employers.

The Item report says that to achieve his target of holding underlying inflation (700) below 2.5 per cent by the time the next election is due in early 1997, the Chancellor will have (720) to slow the pace of economic growth to 2.5 per cent a year. "The 1 1/4 per cent increaes in (740) base rates since September will need to be followed by further tightening, of at least the same magnitude, before (760) the economy will slow and interest rates can peak", the report stated.

But inflation is expected to stay low naturally (780) during 1995, as consumers continue to resist paying higher prices in the shops. Companies are expected to find further (800) cost savings by boosting productivity - the amount of output they produce for each person they employ. As long as (820) productivity grows more quickly than wages, companies will find that they having falling labour costs with which to offset (840) higher raw material prices.

The Item Club said that the Government's public spending plans looked too ambitious by assuming (860) that expenditure will only keep pace with inflation up to 1997/8. This means that tax cuts will have to (880) be paid for by increasing the amount the Government has to borrow, which could go down badly in the (900) City.

Item predicts a £6bn tax cut in total, equivalent to 3 pence of the basic rate of income (920) tax and a 1 per cent boost to personal incomes. "This significant contribution to income growth, coming as monetary (940) policy cycle peaks in late 1995 and a fall in unemployment below 2 million, should significantly improve the prospects for (960) consumer spending in 1996". The Government is expected to have to borrow £20bn in 1996/7, rather than the £13bn predicted (980) in the Budget and so on and so forth eco babble kind of thing that makes about 500 words or so (1,000).

Arts and Entertainment
Banksy's 'The Girl with the Pierced Eardrum' in Bristol
art'Girl with the Pierced Eardrum' followed hoax reports artist had been arrested and unveiled
News
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

PROMOTED VIDEO
Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Adel Taraabt in action for QPR against West Ham earlier this month
footballQPR boss says midfielder is 'not fit to play football'
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

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

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album