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Brown's golden rule looks vulnerable, says report

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29th Nov 2005
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Chancellor Gordon Brown is facing an £11 billion current account deficit and is likely to break his own golden rule in the current economic cycle, despite altering the cycle's start date to avoid this event, Ernst & Young's ITEM Club claimed.

In a special study (248K PDF), launched ahead of the Pre Budget Report on 5 December, ITEM forecasts a current account deficit of £11 billion this year, nearly double the Treasury's forecast of £6 billion.

"And because the slowdown in the economy means that the deficit is likely to be just as bad next year, it is also likely that the cumulative balance over the economic cycle will slip below zero ' breaking the Chancellor's own golden rule," the report concluded.

In what was seen as an effort to avoid breaking his rule - that budget deficits must be balanced with surpluses over a cycle - Brown announced in July that the current economic cycle started in 1997, rather than 1999 as the Treasury had previously indicated.

Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, predicted that the Chancellor would "usher in tax changes" in the PBR to fill the hole in public finances, and may also "tinker with his economic cycle" once again.

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    By AnonymousUser
    30th Nov 2005 19:12

    Stagnation by 2008 is on the cards.

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