ITEM Club warns Brown is on thin ice with economy

Gordon Brown’s luck has ‘run out’ and he can no longer blame external events
for the ‘poor shape of the UK economy’, according to the Ernst & Young ITEM
Club autumn forecast.

Last month the chancellor was forced to concede that his Budget forecast was
unrealistic and, following revisions to the office of national statistics that
GDP growth would only reach 1.6%, the forecasting group said that the chancellor
could also no longer ‘pass the buck for UK’s economy woes’.

The ITEM Club cautiously predicted GDP growth of 2.2% for 2006, but said this
was dependent on ‘sustained growth in the world economy and a recovery in
exports and investments’.

Professor Peter Spencer, chief economic advisor to the E&Y ITEM Club
said: ‘The chancellor is blaming the UK economic slowdown on the recent spike in
oil prices and the weakness of the European economy, but this is unrealistic.

‘The problems were plain to see at the time of last year’s pre-Budget report
in December, but instead of addressing them then the Treasury chose to dress up
the UK finances for the election.’

Spencer said that it was the failure to allow for the domestic risk that
explained the error. He said: ‘The UK is actually in a unique position to
benefit from high oil prices and given the strength of the world economy,
external factors cannot be blamed for the Treasury’s forecasting errors.

He added that the reform of the fiscal rules was long overdue: ‘The UK
economy is on increasingly shaky ground. It can no longer rely on consumer
spending and rate cuts to bolster growth and is depending upon industry to
respond to strong world trading conditions.

‘The chancellor is facing a £11bn black hole and is well on the way to
breaking his golden rule as the economic cycle gets put back further – perhaps
even indefinitely, as the slowdown makes it difficult to see where the cycle
will end. These developments show just how flimsy the current budgetary framewor
k is. Reform of the fiscal rules is long overdue.’

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