Doubt on growth fuels tax rise fear

GORDON Brown's high profile performance as the senior finance minister at this weekend's World Economic Summit has been overshadowed by mounting evidence of stormy times ahead for the British economy.

Figures this week are likely to confirm the suspicion of most analysts that growth in the UK this year will not meet the Chancellor's ambitious targets.

This follows last week's spat between the Treasury and the International Monetary Fund, whose latest world economic outlook has forecast just 2.6% growth this year, against Brown's estimate of between three and 3.5%.

Elsewhere, the IMF fears a surge in pay next year and a sharp fall in the rate of productivity improvement, leading to an acceleration in unit labour costs that will make British goods harder to sell abroad.

Given that closing Britain's productivity gap with other countries has been a flagship Brown policy, the IMF's prediction is likely further to strain relations with the UK.

Another bone of contention is the IMF's belief, published in detailed tables last week, that Brown has already broken his borrowing rule that national debt should not exceed 40 per cent of gross domestic product. On the fund's figures, the debt hit 40.4% last year, will reach 42% this year and 43.1% next year.

Gloomier still is the fund's prediction that national debt will reach 46.3% of GDP in 2010.

IMF managing director Rodrigo de Rato said last week: 'We believe it would be in the interests of the UK to go back to the golden rule on borrowing. We are saying to Britain, 'you were right'.'

The Treasury's figures show Britain meeting the rule. This week sees preliminary official figures for growth in the first quarter of this year. City estimates suggest 0.5% or 0.6% against 0.7% in the first quarter of last year. John Butler, economist at HSBC investment bank, said: 'We would have to see a remarkable acceleration during the rest of the year to reach the Chancellor's target.'

Ross Walker, economist at Royal Bank of Scotland, said: 'Not one City forecaster has an estimate higher than Brown's mid-point of 3.25%.'

The fear is that lower than forecast growth will not produce the revenue on which the Chancellor is banking, leading to tax rises after the election.