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."

Start your day with The Independent, sign up for daily news emails
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
news
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
2015 General Election
May2015

Poll of Polls

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

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Ashdown Group: Front-End Developer - London - up to £40,000

£35000 - £40000 per annum: Ashdown Group: Creative Front-End Developer - Claph...

Recruitment Genius: Product Quality Assurance Technologist - Hardline & Electric

£18000 - £24000 per annum: Recruitment Genius: The role in this successful eco...

Ashdown Group: QA Tester - London - £30,000

£28000 - £30000 per annum: Ashdown Group: QA Tester - London - £30,000 QA Tes...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower