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Schroders says Brown is overly confident on growth

Schroders says Chancellor Gordon Brown&#39s seventh Budget contained few surprises for the wider economy other than false optimism for growth in 2004 and 2005.

UK economist Stuart Block says the revised growth forecast for this year down from 2.5-3 per cent to 2-2.5 per cent is generally good for the investment sector.

But he fears the Chancellor is being overly confident by refusing to change his prediction for growth in 2004 and 2005 of 3-3.5 per cent.

Block has welcomed the Chancellor&#39s announcement of a review into the use of long-term fixed-rate loans in the UK housing market, claiming they make the economy less sensitive to short-term rate movements.

He says: “As expected, there are no big surprises in this year&#39s Budget, with borrowing taking the strain as growth disappoints.

“Forecast net borrowing has been revised up less than expected – only £3bn extra this fiscal year and £5bn next year – but this is due to the Chancellor retaining his over-optimistic growth outlook from 2003 onwards.

“Perhaps more interesting are his plans to develop the market for fixed-rate mortgages in the UK. While this is not a 2003 story, this would make the UK less sensitive to movements in short-term interest rates and hence make entry into European Monetary Union a less unappealing mediumterm story.”

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