Brown’s luck has ‘run out’
Gordon Brown cannot hide behind high oil prices, according to Ernst & Young’s influential ITEM Club.
The group — which uses the same economic modelling system as the Treasury — said that the chancellor’s luck has run out and that the poor shape of the British economy is solely down to domestic failings.
Chief economic adviser to the ITEM Club Professor Peter Spencer said: “The chancellor is blaming the British economic slowdown on the recent spike in oil prices and the weakness of the European economy, but this is unrealistic. The problems were plain to see at the time of last year’s pre-Budget report in December, but instead of addressing them then, the Treasury chose to dress up British finances for the election.”
In the last quarter Britain was a net importer of oil because of production interruption in the North Sea.
However, throughout Brown’s reign, Britain has been a net oil exporter. Compared to eurozone countries with oil reserves, Britain has got off lightly.
Spencer blamed the flabby British economy on the housing downturn and flagging consumer spending, factors that until now have artificially bolstered Britain’s performance.
The ITEM club’s GDP growth forecast is 1.6 per cent for 2005, way below the chancellor’s estimate of 3 – 3.5 per cent, which he has already accepted will have to be pared back to 2 – 2.5 per cent. The first estimate of real growth is due out this Friday.
Spencer says that the Bank of England’s Monetary Policy Committee (MPC) will not cut interest rates because of oil-related inflation and continuing concerns about consumer debt.
He said: “The MPC is fast approaching letter-writing territory, with national debt close to hitting the 40 per cent ceiling, making it increasingly difficult to cut interest rates if the economy weakens.”