Downing Street Says

» Monday, March 17, 2008

Deficits

Put that the Prime Minister had said that the American deficit would be higher than the British deficit because we had taken the right action to deal with global economic turbulence and did the Prime Minister think that deficits were a good thing as it kept economies inflated, the PMS replied that we had fiscal rules that were defined over the economic cycle, so of course it was right that the deficit should go up at a time when the economy was slowing. This was built into the system and was meant to happen and that was one of the reasons why we had been able to maintain positive economic growth over the last decade.

Put that the Prime Minister could potentially increase deficits to maintain economic stability, the PMS said that we had announced in the Budget an increased deficit. This was because the automatic stabilisers were working as they were supposed to work. In other words, when you experience an economic slowdown, it was entirely natural that there should be an increase in the deficit.

That was why our fiscal rules were designed specifically over an economic cycle in order to enable that to happen. Asked if that would enable the UK to go beyond the deficits the Government had announced in the Budget, the PMS said that as and when there was a time to update, we would update them.

Asked whether the Prime Minister felt any need to revise the forecast offered by the Chancellor a couple of days ago, the PMS said that we should never be complacent; we always had to be vigilant to the risks. As part of the process by which the Treasury conducted these forecasts, they were based on deliberately cautious assumptions. The forecast used for the public finances was a quarter of a percent lower than the central forecast for economic growth.

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Deficits

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