MPs warn Treasury of underestimating risks to economy

The Treasury Committee has warned the Treasury it may be underestimating risks that the liquidity crisis poses to the UK economy.

In its report on the Budget 2008, the committee says the Treasury may have given “insufficient weight” to the risks of continued financial market turbulence in making its forecasts for economic growth.

John McFall, chairman of the committee, says: “The Treasury’s forecast of economic growth in the next two years is more optimistic than the consensus view.

“Critical to this forecast is the resilience of the UK economy to shocks. Some of the very things that have kept our economy growing over the last decade may start to cause us problems and the 2008 Budget may not have recognised this fully.”

McFall adds: “There are significant downside risks to the economy and therefore potentially to tax receipts.

“As such, the government is going to have to be extremely vigilant in how it manages the public finances, if it wishes to maintain its so far clean record in meeting its own fiscal rules.”