ITEM Club: Tax rises in 2006 are inevitable

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It's the consumer that is now prudent, not the Chancellor, according to Ernst & Young's ITEM Club.

ITEM said its winter forecast shows the UK economy improving modestly throughout 2005 with expected GDP growth of 2.6%, driven principally by the public sector, but hitting a wall in 2006.

It expects government funding problems to culminate in tax rises in next year's Budget.

Household finances remain in relatively good shape, in contrast. The number of housing transactions is expected to fall this year, but property values will "only marginally decline" and high street spending will "remain robust" as real prices of many goods continue to fall.

Interest rates will remain at or around 4.75%, ITEM says.

Professor Peter Spencer, ITEM's chief economic adviser, said: "The main risk to the UK economy d...

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