Bank chief: No black hole in finances

Sir Edward says the UK's finances are in good shape

There is no gaping black hole developing in the government's finances, according to the governor of the Bank of England.

The chancellor's got a certain amount of room for manoeuvre and I think he'll use it sensibly

Sir Edward George

Sir Edward George told BBC TV's Breakfast With Frost programme that the Chancellor, Gordon Brown, had room to manoeuvre.

The UK economy has grown at a slower rate than the chancellor predicted in his budget.

And, in his pre-budget report, later this month, he is expected to revise downwards his forecasts of growth.

Finances in good shape

Slower growth will mean less income for the government from taxes.

	:	At-a-glance
How healthy is the UK economy?

Mr Brown's critics have argued that this slowdown, combined with his plans for a big increase in spending on public services, will leave a black hole in the government's finances.

But, when asked if a black hole was developing, Sir Edward said: "Oh no, not a serious black hole.

"I think our finances are in much better shape than most other countries in the world."

He said he thought the UK's debt was exceptionally low by international standards.

"There are tactical questions but I think the chancellor's got a certain amount of room for manoeuvre and I think he'll use it sensibly. "

Interest rate rise

Sir Edward said that he was confident about prospects for the world economy and for the UK in particular.

But he warned again about the growth in consumer spending, saying that it needed to moderate.

Although spending on the High Street has helped to keep the economy moving, there is a danger that if it grows too quickly it will lead to inflation.

The suggestion is, that if spending does not slow down on its own, the Bank might have to raise interest rates to keep inflation under control.

Rising inflation

Sir Edward also repeated the bank's warning that the rapid increase in house prices could not be sustained.

He said he expected to see a slowdown in the rate at which prices were growing.

Sir Edward said that wider inflation was under control.

He said that it might be above the 2.5% target for the next few months and might stay there for the rest of next year.

The Bank's inflation target is 2.5% but it has a leeway of one percentage point on either side.

Pay claim danger

During the interview Sir Edward was asked about the firefighters' 40% pay claim.

He warned that if the government agreed to such an increase then other public sector workers would demand rises and threaten strikes.

"That would be very difficult to stop if it were allowed to start."

"I think one has to recognise that if we got wage inflation driven by the threat of strike in this way then that would impact the whole of the economy."