UK - Chancellor Gordon Brown shaved UK growth hopes during his 2003 Budget, with commentators warning that future growth projections are too heavily dependent on an upsurge in the world economy.
The UK growth forecast for 2003-4 was trimmed by half a point to 2%-2.5% and borrowing levels grew by £3bn to reach £27bn. The Chancellor blamed sluggish growth in the eurozone.
But he was confident that the UK would still outperform its G7 counterparts, with growth expected to rise to between 3% and 3.5% between 2004-2005.
He said: “Just as the record shows that in 2001 and 2002 Britain with North America outperformed the rest of the G7 industrialised economies and were the fastest growing, so again, with all the risks, we are expected to be the fastest growing G7 economies in 2003.”
Leading accountancy firm KPMG believes the Chancellor is positioning the UK for a global upturn in the economy, and the Budget has taken the risk of keeping levels of borrowing and other revenue raising measures at a minimum.
KPMG’s UK chief economist Andrew Smith said: “As far as the public finances are concerned, the Chancellor is betting heavily on an early economic recovery.
“But it is by no means certain that the global recovery will be strong enough to deliver the sort of growth the Chancellor is hoping for to fill the gap in the public finances.”
He added that the Chancellor’s projections were also leaning heavily on buoyant consumer spending in the UK.
“There is also a risk that what the Chancellor reads as a cyclical shortfall in revenues turns out to be structural. Only time will tell if he is right.”
Inflation was targeted at 2.5% for the year. Fixed investment was expected to grow by 4.25% to 4.75% this year. Domestic demand was also expected to reach 3.5% this year.
Andrew Milligan, head of global strategy, Standard Life Investments, said: “In effect, the Chancellor postpones for another day the difficult decisions which need to be taken on taxation, spending and borrowing.
“He has lowered his economic forecasts for 2003 but relies very noticeably on a strong upturn in the global economy in 2004 and 2005 to quell the pressures on public finances appearing in the run up to the next election.”
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