Treasury to lower growth expectations

The Treasury will revise down its growth target for the economy this year in its summer forecast, due to be published early in July, despite Chancellor Kenneth Clarke's insistence that strong consumer spending will boost the economy.

The move is likely to increase pressure from Conservative backenchers for further cuts in the cost of borrowing later this year. Many see buoyant growth as essential to their re-election chances.

City analysts do not, however, expect Mr Clarke to rush to reduce base rates after his monthly meeting this morning with Eddie George, Governor of the Bank of England. The Chancellor has cut rates three times since December to their current 6 per cent level.

In last November's Budget Mr Clarke predicted 3 per cent growth in GDP in 1996. The Treasury is likely to cut this to 2.5-2.7 per cent, reflecting weaker export markets and continuing stagnation in manufacturing industry.

The Treasury's caution mirrors similar revisions by other forecasters - including some of its panel of "wise persons" - who had been relatively optimistic about the pace of growth.

The Organisation for Economic Co-operation and Development will publish a revised outlook for the UK at the end of this month showing that its experts are not confident of a significant pick-up in the economy during the rest of this year. It will cut its forecast from the 2.4 per cent published in December, although the downgrade is unlikely to be as dramatic as draft documents have suggested.

The tone of the think-tank's annual report on the UK remains optimistic about the medium-term outlook for the economy. But, given the potentially embarrassing downward revision ahead of an election campaign, its publication has been brought forward as early as possible from the usual midsummer date.

Other prominent economists are shading down their predictions for growth this year. They include the London Business School, whose latest outlook was released last week, and the National Institute for Economic and Social Research, which publishes a new prediction in 10 days' time.

Andrew Sentance, director of the LBS's Centre for Economic Forecasting, said: "The rate of growth is likely to pick up during the course of this year, but it would not be credible for the Chancellor to stick to a 3 per cent forecast." The Treasury would have to concede that the international environment had weakened, he said.

Martin Weale, director of the institute and one of the Treasury's panel, said: "It would be too pessimistic to predict that there will be no improvement during the year. However, the Chancellor's chance of meeting 3 per cent is only one in five. It is not very likely."

The financial markets also expect the economy to strengthen. Traders in the futures market are betting that base rates will start rising from their current level by the autumn.

Recent preliminary figures show that the economy grew by 0.4 per cent during the first quarter of this year, taking GDP to a level only 2 per cent higher than a year earlier. The Office for National Statistics reported that the service industries expanded by 0.5 per cent during the first quarter, down from a 0.8 per cent increase in the final quarter of last year.

But many economists think the preliminary estimates will be revised up, as they were for the fourth quarter of 1995. Some forecasters who had been at the pessimistic end of the range about this year's outlook have recently upgraded their figures.

The Treasury's monthly summary of forecasts for the UK economy showed that the average new prediction for GDP growth in 1996 was 2.4 per cent, up from 2.3 per cent.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
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

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before