Experts give Brown room to breathe

The chancellor, Gordon Brown, could afford a further boost to Britain's public spending without raising taxes, a leading economic thinktank said yesterday.

As Mr Brown prepares his April Budget, the National Institute for Economic and Social Research said its projections showed he could meet his spending rules with £8bn to spare. "We do not see the fiscal rules being breached, and from that point of view, tax rises are not necessary," said Rebecca Riley, presenting NIESR's quarterly snapshot for the economy.

The sanguine assessment of the public finances is likely to intensify the row in Whitehall about how to find extra money for Britain's hospitals and schools, after the Institute for Fiscal Studies claimed on Wednesday that spending increases would blow a £7bn hole in the government's budget.

NIESR's forecasts show the slowdown in Britain's economy continuing throughout this year, with growth eventually bouncing back to an above-trend 2.6% in 2003.

The deterioration in the global economy is projected to squeeze almost all upward price pressures out of the UK, so that by the end of 2002, there will be more than a 50-50 chance that inflation will drop below 1.5%, forcing Sir Eddie George, governor of the Bank of England, to write to the chancellor explaining why.

But the latest Nationwide house price figures, also published yesterday, showed little sign that inflation is easing in Britain's property market. It said prices rose by 0.2% in January, with annual inflation slipping slightly to 11.7% from 13.8% in December.

"Despite pessimistic news from the global economy and the UK manufacturing sector, the housing market is holding up well," said Nationwide economist, Alex Bannister. "The reasons are straightforward, with strong real take home pay and the lowest mortgage rates for 40 years offsetting fears over increased job uncertainty."