Economy 'weaker than predicted'

Gordon Brown with Mervyn King, Governor of the Bank of England

UK economic growth will be lower than he expected, Gordon Brown has said.

Speaking to the BBC before a meeting of the IMF, he blamed events such as a sluggish global economy, oil price rises and a "house price bubble".

The BBC's Guto Harri said Mr Brown had predicted growth would be 3-3.5%, "but now we are talking 2.5% or less".

Weaker economic growth could mean less money for ministers to spend, possibly leading to increased taxes, more borrowing, or public spending cuts.

Economic critics

Mr Brown said the UK had had to survive several global economic ups and downs in recent years.

He remained confident that the UK economy was strong, however, and that it would continue to grow faster than any other major European economy.

"Because we have a strong fiscal and monetary position, because we've cut debt, because the Bank of England works well, it's because we've been tough on inflation that I believe we can maintain stability and growth, even when some of our neighbours are now in recession," he said.

He told the IMF meeting in Washington on Saturday: "Britain is continuing to grow faster this year than the other major European economies, all of whom are forecast to grow by less than 2% with just 1.2% growth in the euro area."

But shadow chancellor George Osborne told the BBC Mr Brown had mismanaged the economy and tax rises were inevitable.

Oil prices were "not the only reason" for the lower growth forecasts, he said.

"His own mismanagement of public finances is widely recognised as an important factor too.

"His main priority now must be to get a control on public spending. It's been soaring in recent years... and it's that very large amount of spending which has caused the chancellor to borrow more than he's forecast and will inevitably lead to tax increases.

"That is something that the Chancellor of the Exchequer can get a grip on now and that's what he should be concentrating on."

And Liberal Democrat treasury spokesman Vince Cable said: "Gordon Brown is in serious trouble for the first time as chancellor because of problems of his own making."

He claimed Mr Brown had relied too much on upbeat Treasury forecasts and was now having to "eat humble pie".

IMF experts believe the UK's gross domestic product (GDP) will grow by 1.9% in 2005.

Domestic factors

Mr Brown's new expectations are more in tune with what most independent analysts have always expected, correspondents say.

The British Chambers of Commerce (BCC) said it was not surprised by Mr Brown's speech, as it had always predicted slower growth than the Treasury.

Director general David Frost said: "While high oil prices and low European growth are clearly important factors accounting for lower UK growth in 2005, it is important to bear in mind the dampening domestic factors".

These were "a sharp deceleration in consumer spending growth, a rapidly weakening housing market, and worrying signs of falling business confidence," he said.

The BCC called for the Bank of England to cut interest rates if economic circumstances worsened, and also urged the chancellor to boost business confidence by not introducing more taxes.

On Sunday 25 September 2005 at 22:15 BST on BBC One Panorama will be assessing Gordon Brown's performance since 1997, in Brown's Miracle Economy.