Even though growth forecasts for the British economy are falling short of expectations, there doesn’t seem to be any requirement for another interest rate slash, according to a new report by a leading thinktank.
Growth forecasts were lowered by the Organisation for Economic Cooperation and Development (OECD) for the year to 1.7% from the erstwhile 2.4%, which added that the chancellor, Gordon Brown, could fulfill his “golden rule” of borrowing purely for the purpose of investing during the existing economic cycle.
However, OECD cautioned against a rise in taxes over the forthcoming cycle, so that the next cycle saw public finances in a better shape. It explained that its huge public investments were not bringing in enough moolah and a hike in infrastructural expenditure possible would not be able to fix “years of neglect”.
Dismissing any need for a rate cut after August’s quarter-point rate slash that came about owing to a weakening economy, the OECD said clearly, “Given that the level of output is currently close to capacity, that inflation has been increasing and is now above target and short-term indicators suggest growth may return to trend, there is not a compelling case for further rate cuts.”
It added in its report, “The government's recently revised judgment that the current cycle began two years earlier than they had previously thought will help to meet the golden rule over the current cycle.”
Chancellor Brown had been criticized in the beginning of the year for shifting the starting date of the current economic cycle from 1999 to 1997, thereby extending the existing cycle to nine years. Critics alleged that Brown was “cheating”.
Meanwhile, the OECD pointed out that the economy was operating only ‘slightly’ above its capacity, which was an indicator that a decline in growth predictions was “perhaps not unwelcome”. In addition, it said that risks of a severe crash of the property market had noticeably dipped, and inflation rates were expected to hit a higher average of 2.1% in 2005 against the earlier mid-year forecast of 2.0%.
Growth forecasts for 2006 were left unaltered at 2.4% along with inflation forecast of 2.1%.
Posted
on : Thu, 13 Oct 2005 13:10 GMT | Banking News
By : Paula Jenkins
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