Chancellor Alistair Darling is under fire for underestimating the risks posed to the economy by the liquidity crisis.
The Treasury Committee has told the chancellor that the Treasury may have given insufficient weight to the risks of financial market turbulence when formulating its forecast for economic growth.
John McFall, chairman of the committee, says: “The Treasury’s forecast for economic growth in the next two years is more optimistic than the consensus view. And critical to this forecast is its estimation of the resilience of the economy to market shocks.”
McFall warns that some of the sectors that have kept the economy growing during the past decade – including mortgages – may run into problems and the 2008 Budget fails to fully recognise this fact.
He adds: “There are some significant downside risks to the economy and therefore to tax receipts.
“The government will have to be particularly vigilant when it comes to managing public finances from now on if it wants to maintain its record of ad-hering to its fiscal rules, which has been good so far.”