Brown accused over boom

Gordon Brown is being accused of manipulating his economic policies to deliver an unsustainable boom in the run-up to a general election year that will leave Britain with an immense financial hangover.

A group of independent economists claims that the Chancellor of the Exchequer has "conjured up a classic pre-election boom" by ignoring fears of a black hole in public finances to boost government spending and changing the way the Bank of England sets monetary policy to keep down mortgage rates and support the housing market.

The accusation, in a report published today by the Independent Treasury Economic Model (Item), run by the accountants Ernst & Young, comes as Mr Brown was forced to defend himself against criticism from the International Monetary Fund, which used its keynote economic report at its annual spring meeting in Washington DC to warn that a crash in house prices was the biggest threat to the British economy.

The Chancellor, who has insisted he has put an end to the years of cyclical economic boom and bust, said the report's authors had got their growth forecasts wrong and should show "more humility". He also issued a defence of the Government's housing policy, saying the market was on a more solid foundation than a decade ago when prices crashed under Conservative chancellors. Item said the economy will enjoy growth this year and next at levels not seen since the late 1990s, when the world was gripped by a stock market bubble that burst, plunging the world into recession.

Peter Spencer, an economics professor and chief adviser to Item, said: "After three years of misfiring, the economy is now firing on all four cylinders. The Chancellor's manipulation of the economic cycle is either extremely skilful, very lucky or a bit of both ­ it's not just a happy accident." He accuses the Chancellor of changing the inflation measure the Bank targets when it sets rates ­ from the so-called RPIX measure currently at 2.6 per cent to the European CPI measure now at 1.1 per cent ­ to deliver lower borrowing costs. "The new CPI inflation card, cleverly deployed in the context of last year's euro debate, now looks like an election winner," he said. "With CPI at 1.1 per cent, threatening to crash through the floor, it will be presentationally difficult for the monetary policy committee to raise rates."

The report also said that the Chancellor was boosting growth by raising spending by billions over the next few years in the face of claims by independent analysts that the Government will have to raise taxes to prevent it breaching its own "golden rule", that it must balance the books over the economic cycle.

"[Mr Brown] continues to play his fiscal cards aggressively despite the approaching void in this suit," Professor Spencer said. Item, which uses the Treasury's own economic model, forecast that the economy would grow by 3.25 per cent in both 2004 and 2005. It said business investment was up, high street spending was surging, the stock market was rising and house prices were booming.

"All is surely rosy in the garden," he said, adding that the Bank would eventually have to raise interest rates to 5 per cent. This will land households labouring under a record debt mountain with higher mortgage bills, which could trigger a rise in bankruptcy and home repossessions which in turn could lead to a consumer recession.

Oliver Letwin, the shadow Chancellor,said: "This economic boom is being led by a combination of household consumption and public sector expansion. The issue is how sustainable will it be after the next election."

Paul Tucker, a member of the Bank of England's monetary policy committee, indicated that the interest rate of 4 per cent would most likely rise as the economy showed no signs of slowing to trend growth levels.

The Chancellor, who chaired a meeting of the IMF's ruling monetary and financial committee, said that Item produced the same report every month. "It is a continuous exercise of playing politics with stability," he told The Independent. "People recognise that inflation is below target and we have met our growth forecasts ... I would have thought that some humility on the part of these forecasters would be appropriate."

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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 General

English Teacher

£22000 - £36000 per annum: Randstad Education Leeds: Secondary English Teacher...

Content Manager - Central London

£35000 - £40000 per annum + Benefits: Ashdown Group: Content Manager - Central...

General Cover Teacher - Grimsby

Negotiable: Randstad Education Hull: Qualified Teachers needed for Supply in t...

English Teacher Urgently Required - Secure Unit - Nottingham

£100 - £161 per day: Randstad Education Nottingham: Are you a fully qualified ...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on