'Wise men' advise against tax rises
The seven said in their first published report that policy should err on the side of boosting growth rather than bearing down on inflation: 'The costs of weaker than anticipated activity would be much higher than those from unexpectedly strong growth over the next 12 months.'
On average the seven expect the economy to grow by 1.1 per cent this year, in line with the Autumn Statement forecast. They believe that underlying inflation will stay below the Chancellor's 4 per cent target ceiling and that unemployment will rise to 3.2 million by the end of the year. Most of the seven think the trade gap is a 'cause of concern' that could constrain recovery.
The seven urged the Chancellor to hold fire on taxes until there was 'clear evidence of healthy recovery', but called for a clear strategy to get government borrowing under control in next month's Budget. They welcomed the interest rates cuts since Black Wednesday, but said it was too early to judge if they had fallen enough. The Chancellor was urged to cut rates again soon by Patrick Minford, of Liverpool University, and Gavyn Davies, of Goldman Sachs.
David Currie, of the London Business School; Wynne Godley, of Cambridge University; Andrew Sentance, of the CBI; and Andrew Britton, of the National Institute for Economic and Social Research said rates should be cut again if the pound rose or the economy continued to weaken. Tim Congdon, of Lombard Street Research, called for tax increases next month and lower rates if money growth was slow.
The seven also urged the Chancellor to abandon the 'full funding' rule, allowing the Government to finance its borrowing in part by selling bonds to banks and building societies. This might increase bank and building society deposits, give the private sector more liquidity and ease pressure on long-term interest rates.
The Chancellor announced the creation of the panel in last year's Mansion House speech. Critics argue that the seven's main purpose is to divert attention from the Treasury's forecasting and policy errors. The Treasury has long argued that it was not alone in failing to predict the late 1980s boom and the recession, and that most independent economists were as inaccurate.
Table of forecasts, page 15
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