U.K. expected to cut growth estimate
LONDON: The chancellor of the Exchequer, Alistair Darling, is expected to cut the British economic growth forecasts for next year made by his predecessor - and now the prime minister - Gordon Brown when he presents his first prebudget report Tuesday.
But the Treasury chiefs spending update may also come with an electorate-friendly measure like a cut in taxes on home purchases or inherited wealth. Darling has said that the global credit crisis, sparked by U.S. defaults on subprime mortgages, will have an impact on the British economy. Darling is also expected to lift his borrowing forecasts.
“Weve been skeptical over the strength of the Treasurys forecast for some time, and given the credit squeeze there are even more downside risks,” said Philip Shaw, chief economist at Investec. “The chancellor is picking up the reins of the economy at a difficult juncture.”
Brown penciled in growth of 2.75 percent to 3.25 percent this year and 2.5 percent to 3 percent next year in his last budget as treasurer in March.
Economists said the 2008 forecast could be trimmed to 2.25 percent to 2.75 percent, bringing it closer in line with economists average predictions of 2.2 percent.
“Exports are vulnerable to a global slowdown, while at home business investment may be constrained by tighter credit conditions,” said Andrew Smith, chief economist at KPMG, a business services firm.
Slower economic growth will also make it difficult for the government to stick to its borrowing targets.
It had planned to cut its borrowing to 30 billion, or $61.2 billion, from 34 billion in the current fiscal year, a goal that now appears shaky.
The prebudget report comes as Brown struggles to defend his announcement Saturday that there will not be an election this year or next.
Analysts said that decision indicated that the government believed that the economy was not headed for a sharp slowdown, a potentially risky analysis given the current turmoil in markets. They warned that high levels of household and government debt could take a greater toll on the domestic economy than the Treasury anticipates.
