UK growth forecast cut
The UK economy is set to grow at a slower rate than previously expected this year, Alistair Darling said in his Budget speech.
The growth forecast for 2008 has been revised down from 2.5% to between 1.75% and 2.25% - the biggest slowdown since Labour came to power in 1997 - following on from 3% growth in 2007. But Darling estimated that growth would recover to between 2.25% and 2.75% in 2009 and then back to between 2.5% and 3% in 2009.
The downward revision of the economy’s growth prospects - which had been widely expected - is due to disruption in global financial markets. Darling said the negative impact of the downturn will be more prolonged than assumed in the 2007 pre-budget report, following further evidence that developments in financial markets are creating tighter credit conditions for both individuals and businesses.
He added that the inflation target - based on the Consumer Prices Index - of 2%, would not change. But Darling warned that there would be pressure on inflation in the short-term due to rising global agricultural and energy prices, although it is expected to fall back by the end of 2008.
Public borrowing levels, however, are set to rise by £7 billion more than Darling had previously predicted, to £43 billion in the coming tax year, attracting criticism that the government failed to strengthen its economic position during the years of strong growth.
"Darling highlighted weaker global growth, financial market turmoil and tighter lending conditions influenced markedly by the US crisis." said Howard Archer, chief UK economist at Global Insight. "This skates over the fact that the UK economy has serious problems of its own - notably including high household debt levels and an over-extended housing market."
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An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).