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Brown stands by optimistic growth forecasts

Philip Thornton,Economics Correspondent
Thursday 01 May 2003 00:00 BST
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The Chancellor has defended his optimistic forecasts for growth and public finances, saying there were already signs of an economic rebound. Gordon Brown told MPs there was more optimism after the end of the Iraq war, and after the fall in oil prices over the past month.

He said critics of his forecasts for a revival in tax receipts were misinformed as the Treasury had more information than independent forecasters, although the Treasury declined to elaborate.

Mr Brown was given a further boost yesterday by news that share prices in London surged 8.7 per cent in April ­ the strongest monthly gain for more than five years.

Giving evidence to the Treasury Select Committee, Mr Brown was accused of delivering "optimistic and wrong" forecasts in last month's Budget. The Government is forecasting growth of between 3 and 3.5 per cent next year and in 2005 compared with the latest average City forecast of just 2.3 per cent in 2004. He said many of the gloomier forecasts were produced amid the uncertainty that prevailed in the run up to the war.

"We now look to a picture that seems a bit different," Mr Brown said. "The oil price has been coming down and there's more optimism and less uncertainty about the global economy."

He said more recent forecasts such as the Organisation for Economic Co-operation and Development's were more upbeat.

"If you look at the changing nature of people's views I think they are moving towards what we are suggesting for 2004 and 2005," the Chancellor said.

He cited Tuesday's strong retail sales figures, forecast earnings growth would remain strong and said there was evidence business investment was returning.

"Business investment decisions that firms wanted to make were being postponed while they waited for the uncertainty to clear. I think the Treasury estimate that investment will be back in the second half of the year is the right one," he said.

He said industrial output had begun to recover especially in the hi-tech area that had suffered a 30 per cent fall in investment demand.

"We expected the industrial output and trade effects to give a more balanced economic growth and that's what we are now seeing," he said.

Challenged over the divergence between the forecasts by the Treasury and the Bank of England, the Chancellor echoed hints last week from Gus O'Donnell, the Permanent Secretary to the Treasury, that the Bank would raise its outlook in its new forecasts in May.

David Ruffley, a Tory MP, dubbed Mr Brown's predictions "completely bonkers" and said the Treasury would be forced to hike taxes by £10bn to make up for a shortfall in tax receipts, citing reports from bodies such as the Institute for Fiscal Studies.

Mr Brown said unlike the IFS, which forecast tax revenues from assumptions about growth, the Treasury based its figures on the latest information from the Inland Revenue that was not published. A Treasury spokesman later said this included up-to-date sector breakdowns but said it could not reveal the results.

Carl Emmerson, a senior analyst at the IFS, said: "It would be more transparent if the Treasury published a central growth forecast and a full set of its assumptions because that would allow independent scrutiny that would put pressure on the Treasury to keep the figures realistic."

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