Gordon Brown announces that the Government have downgraded economic forecasts for the second time in the last six months by 0.5%. Economic Growth Forecast 2-2.5% this year and next year 3-3.5% (unchanged). What does that mean?
Our view
He is gambling on increased growth to pay for extra borrowing.
Borrowing
Original forecasts for borrowing were last year £105bn with £20bn for this year and £20bn for next. These have been increased. He revised his borrowing requirement six months ago to £24bn for this year. With increased costs for the Gulf War etc estimated at £3bn and counter terrorism procedures £330m. He has now revised borrowing requirements to £27bn this year and £24bn next. What does that mean?
Our view
He got his maths wrong again - excluding the extra £3bn for the War - he was still nearly 20% out on his sums! He is gambling on British Business growing faster than other economies next year and that he will receive more money in corporation and income taxes as a result to partly cover the extra sepnds. It is a big gamble considering most commentators and even the International Monetary Fund think that it will be lower. If he has got it wrong - expect more stealth taxes in future budgets!