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Last Updated: Wednesday, 21 September 2005, 20:12 GMT 21:12 UK
UK growth set to slow, IMF warns
People walking down Oxford Street in London
The worry is that consumers are limiting their spending sprees
The UK's economy is likely to grow far more slowly than Chancellor Gordon Brown forecast this year, the International Monetary Fund has said.

The IMF expects the UK's gross domestic product (GDP) to expand by 1.9% in 2005, well below the 3-3.5% range expected by the Treasury.

Record crude oil prices, a cooling of the housing market and higher interest rates are taking a toll, the IMF said.

The IMF also called on Mr Brown to curb spending and trim the budget deficit.

Busting out

"Growth has proved weaker than expected," the Washington-based financial institution said in its twice-yearly World Economic Outlook report.

"With IMF staff projections suggesting no improvement in the fiscal deficit in 2005 or 2006, fiscal consolidation remains necessary."

UK 1.9%
US 3.5%
Germany 0.8%
France 1.5%
Japan 2%
China 9%
India 7.1%
Source: IMF

The comments came on the same day as the European Commission said it would reprimand the UK for breaking the rules that govern the size of a nation's budget deficit.

Under the rules of the Stability & Growth Pact, budget deficits should be kept to less than 3% of annual GDP.

The EU's Economics Commissioner Joaquin Almunia said provisional estimates put the UK budget deficit at 3.1% of GDP for the financial year 2004/2005.

The IMF said it would be closer to 3.2% both this year and the next.

While that does not seem significant, it is likely to increase pressure on Mr Brown who has been accused of getting his maths wrong and of having no choice but to increase taxes by more than 10bn to finance spending plans.

Adding up

Mr Brown has always argued strongly that any outlay is fully financed and that he will not be forced to either raise taxes or break his golden rule of not borrowing money to pay for government spending programmes.

What is the 'Golden Rule'
It is one of a number of rules that govern how much the government can borrow, and for what purpose
It means the government can only borrow to finance investment, and not to fund day to day - or "current" - spending
Adherence to the rule is judged on whether the current budget is in surplus, averaged out over the economic cycle as a whole
The current economic cycle is expected to end in 2006

The last time the IMF made similar comments, Mr Brown dismissed them as mistaken.

The Treasury - which has been very accurate in the past - has also been sticking to its guns regarding its estimates for growth.

However, the economic landscape has changed since Mr Brown last made its forecasts, and the Bank of England cut interest rates to 4.5% from 4.75 in August amid signs of a slowdown in consumer spending.

"Our broad concern remains that looking forward, it will be difficult on present policies, in our view, for the UK to meet its fiscal rules," David Robinson, deputy research director at the IMF, told a news conference.

The IMF's annual meeting of its international monetary and financial committee will take place in the UK this weekend and will be chaired by Mr Brown.

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