Link: Pre-Budget 2003 special
What is more, given that the economy has grown broadly in line with the chancellor’s forecasts this year, the borrowing overshoot is largely structural and will therefore continue into later years. Borrowing in the five years to 2007/08 is now expected to be a total of £35bn higher.
Brown’s numbers suggest that his golden rule will still be met, with a margin of error of £14bn. But, given the average forecast error for borrowing one year ahead of £10bn, this cushion could quickly be used up.
The overall picture is of a chancellor crossing his fingers in the hope that the domestic and global economic recovery will lead to rapid economic growth. If not, he will almost certainly be forced to scale back his spending plans or, more likely, raise taxes.
The chancellor also confirmed the immediate switch to the harmonised index of consumer prices (CPI) as the UK’s targeted measure of inflation. Although the Bank of England monetary policy committee has suggested that the impact on monetary policy decisions will be neutral, the resulting drop in inflation from above its old 2.5% RPIX target to below its new 2% CPI target should relieve some of the pressure to raise interest rates.
- Roger Bootle is economic adviser to Deloitte.