Amid growing pessimism over the economy, previous forecasts of growth in Britain this year are to be scaled back for a report that the Treasury is publishing this week.
The Chancellor, Gordon Brown, will be forced to cut the prediction of his March Budget that the economy will grow by between 2.25 and 2.75 per cent, government sources admitted yesterday. The Treasury's survey of independent City forecasts, to be published on Wednesday, is expected to show that growth will reach only 2 per cent, with some analysts thinking the figure will be lower. Last month, the average forecast was 2.2 per cent.
Most of the latest surveys studied by the Treasury's economic assessment team were compiled before last week's attacks in America and reflect rising fears of a global recession. The attacks have further deepened the gloom and one analyst, Oxford Economic Forecasting, is warning that higher oil prices and falling share prices and consumer confidence could cut growth in Britain by another 0.3 percentage points next year.
The gloom is likely to persuade the Bank of England's Monetary Policy Committee to cut interest rates at its next meeting on 3-4 October. Digby Jones, the director general of the Confederation of British Industry, said yesterday that the need for a cut had been made "even more important" by events. "We've got to stimulate the consumer," he told GMTV's Sunday programme.
Treasury officials will start work shortly on compiling a new prediction for Mr Brown to announce in his pre-Budget report in November. Although revising the March forecast will be a setback to him, his aides insist that Britain is well placed to weather the storm. The International Monetary Fund predicts that the UK will enjoy the fastest growth of any principal European economy
Treasury officials are trying to calm fears that the attacks will push the world into recession. They are saying the impact of wars has often been exaggerated in the past.
The Chancellor said yesterday that governments and central banks would take "whatever action is necessary" to prevent a slide into recession. "The terrorists should know that the international financial community will remain resolute and never surrender," he said.
Mr Brown will discuss the need for a co-ordinated response to the attacks with European Union finance ministers in Liège, Belgium, on Friday.Reuse content