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Report warns Government forecast may be tight

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07/04/2008

The Treasury may have given insufficient weight to the risks of continued financial turbulence when forecasting economic growth in last month’s budget, according to a report from the Treasury Committee.

Published today, the report examines the budget announcement issued by Chancellor Alistair Darling on 12 March. The Committee revealed the Treasury’s growth forecasts were more optimistic this year than the average of independent forecasts and said the margin by which the Treasury forecasts that it will meet the sustainable investment rule is “extremely tight, especially considering the uncertainty surrounding the overall economic situation”. The sustainable investment rule was created by Gordon Brown in 1997 to keep public sector debt under control.

John McFall, chairman of the Treasury Committee, said: “The Treasury’s forecast of economic growth in the next two years is more optimistic than the consensus view. Critical to this forecast is the resilience of the UK economy to shocks. Some of the very things that have kept our economy growing over the last decade may start to cause us problems, and the 2008 Budget may not have recognised this fully.”

He added that the Government would have to be extremely vigilant in how it manages the public finances in order to “maintain its so far clean record in meeting its own fiscal rules”.

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