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Tuesday, 1 October, 2002, 16:20 GMT 17:20 UK
Brown admits UK growth to slow
London
The City believes UK growth may disappoint the Treasury

The UK Government appears to have admitted that it will not reach its economic growth targets for 2002 and 2003.

A key aide to the Chancellor has suggested to journalists during the Labour Party conference at Blackpool that the UK economy will not grow by 2-2.5% this year, and 3-3.5% next year, as forecast in July.

At that time Gordon Brown announced the biggest ever increase in public spending to fund improvements in health and education.

Now those improvements could be put in jeopardy if the economic slowdown continues to intensify - unless the Chancellor is prepared to raise taxes further in future Budgets.

World slowdown

The economic slowdown is being driven by events in Europe and America, where the economic recovery is faltering.

As a result, most independent forecasters now expect the UK economy to grow by only 1.5% this year, and 2.4% next year.

Under Gordon Brown's own fiscal rules, he could carry on spending and borrowing the shortfall in the short-term.

But the slowdown would make it unlikely that the Chancellor would be able to satisfy the European Commission that he met the stricter rules of the Growth and Stability Pact, were Britain to consider joining the euro in 2003.

Official figures

Last week, official figures for the first half of the year show that the UK economy only grew at half the rate projected by the government.

A revision of UK gross domestic product data showed that the economy grew by 1.3% year on year in the second quarter, slightly up from an earlier 1.2% estimate.

Economists estimate that each 0.5% reduction in UK economic growth raises public borrowing by about 2bn.

Net borrowing is currently forecast at 11bn in 2002-3, and 13bn in 2003-4.

But the figures exclude Mr Brown's rule that allows borrowing for investment, and also exclude the private finance initiative (PFI) deals that are so important to the government.

Rising unemployment?

The data comes two days after International Monetary Fund chiefs warned that the UK's economy, with those of other major Western countries, would expand by less than had previously been hoped.

This year the UK economy would grow by 1.7%, compared with a previous forecast of 2%, the IMF said.

In 2003, expansion would hit 2.4%, as opposed to the 2.8% previously hoped.

And the IMF warned that there were still great uncertainties in the world economic outlook - notably the effects of any Iraqi war on world oil supplies.

Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

25 Sep 02 | Business
20 Aug 02 | Business
16 Aug 02 | Business
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