The Economy: Chancellor lauds his efforts - City is less excited

Click to follow
The Independent Online

With his eyes firmly on the future - both of the economy and of his own career - Gordon Brown used his 10th and final pre-Budget report to praise his own economic stewardship over the past decade.

According to the report's forecast, the economy is set to grow at about its trend level in every year between 2006 and 2009 - a period that will include the Chancellor's expected elevation to the top job.

He lauded his achievement in beating his Budget forecast for economic growth this year, but failed to tell MPs that he had cut the outlook for 2008.

Those changes aside, there was precious little to worry the City of London. "To be honest there was nothing major for us in there," one trader said.

Of course, there was no incentive for Mr Brown to cut his forecasts, nor to offer a hostage to fortune by forecasting a growth bonanza in his first year as Prime Minister.

Just in case anyone missed the link, the Chancellor spelt it out: "This is my 10th pre-Budget report and under this Government, the 10th consecutive year of growth."

He was quick to highlight the fact that economic growth had beaten his March forecast of a lacklustre 2.0 to 2.5 per cent annual growth to hit 2.75 per cent, exactly in line with the Treasury's estimate.

The pre-Budget report confirmed that investment has surged by 6 per cent his year, compared with the 2 per cent forecast in March. In particular, investment in private homes jumped by 8 per cent against a forecast of zero growth.

"Mr Brown talked up the extended strength and stability of the economy under his stewardship," said Howard Archer, chief UK economist at Global Insight.

The report said the economy is set to accelerate to about 3 per cent growth next year, before slowing to around 2.75 per cent in both 2008 and 2009 as both consumption and investment weaken slightly.

However the Chancellor is still much more optimistic than independent forecasts in the City. The Treasury's own survey of City economists shows the average forecast is for 2.4 per cent. "The 2007 projection looks pretty optimistic to us, given anticipated slower global growth over the coming months," Mr Archer said.

The City then expects only a marginal acceleration to 2.5 per cent in 2008 and to 2.6 per cent in both 2009 and 2010. John Hawksworth, head of macroeconomics at PWC said that, with not a single quarter of negative growth since Labour won power, the Chancellor was justified in boasting of his record. "But his growth forecasts for the next couple of years, although within the plausible range, are more optimistic than those of most other forecasters," he said.

David Kern, economic adviser to the British Chambers of Commerce, described the forecasts as "unduly ambitious".

"We believe the pace of UK growth is set to slow over the next year, because disposable incomes are being squeezed, global prospects are worsening, while sterling and interest rates have risen and could go up further," he said.

Comments