Fiscal rules to change
Treasury officials are working on plans to reform Gordon Brown’s fiscal rules to allow for increased borrowing.
The move comes as the government comes dangerously close to breaking its rules limiting public sector debt to 40 per cent of national income.
Any changes are likely to be announced in the autumn pre-budget report, once the Treasury knows the outcome of the Office of National Statistics’ revisions to its national accounts.
Public sector borrowing was 50 per cent higher in the first two months of the financial year and in spite of rising oil prices boosting North Sea revenues, slower economic growth means the public purse is strained.
The International Monetary Fund, however, yesterday revised up estimates it made in April for global growth this year and next. The IMF said it now expects the global economy to grow 4.1 per cent in 2008, up from an initial forecast of 3.7 per cent in April.
Based on its new calculations, the IMF expects the UK economy to grow by 1.8 per cent in 2008 and 1.7 per cent in 2009 – up from a previous forecast of growth of 1.6 per cent in both years. IMF chief economist Simon Johnson said the effects of turmoil stemming from the US subprime lending crisis were still filtering through the global economy, but at a slower rate than previously expected.
He stressed that key problems were on the horizon, saying the economy remained in a “tough spot,” and warned there was a chance the world economy could fall into recession.