Share falls threat to spending

By Charles Reiss
Updated: 19:00 EDT, 30 September 2002

GORDON BROWN was braced for more turmoil on the financial markets after warnings that he is about to cut back his predictions for the growth of Britain's economy both this year and next.

The Chancellor's speech to Labour's conference was overshadowed by a 5% fall in the FTSE 100, down to its lowest level in almost six years. Wall Street also saw a sharp drop.

Today shares staged a modest rally as the Nationwide upped its forecasts from 18% to 23% for this year's rise in house prices, although warning of a 'natural slowdown' in London.

After Brown's speech, his aides admitted publicly for the first time that UK economic growth may fall below his forecast, at the last Budget, of a rise of up to 2.5% this year and 3% to 3.5% next year.

The cutback, which Brown is not due to confirm until his pre-Budget report next month, has huge implications for spending, taxing and borrowing plans. Each half percentage point cut in growth costs the Treasury an estimated £2bn a year.

In his speech, Brown said the Government would weather a slowdown and keep spending plans intact. The Treasury's growth warning appears to have been triggered, in part, by International Monetary Fund talks in Washington.