HM Treasury News Release

173/98                                 22 October 1998
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STEERING A COURSE OF STABILITY IN BRITAIN

Attached is an extract from the speech given by the Chancellor of
the Exchequer, Gordon Brown today to the European Investment Bank
Forum.

STEERING A COURSE OF STABILITY IN BRITAIN

JUST AS WE ARE WORKING FOR STABILITY INTERNATIONALLY, SO
IN THIS UNCERTAIN AND UNSTABLE WORLD WHERE GROWTH
FORECASTS FOR THE WORLD AND FOR NATIONAL ECONOMICS ARE
BEING DOWNGRADED BY NATIONAL AND INTERNATIONAL
AUTHORITIES ALIKE, THE GOVERNMENT IS STEERING A COURSE OF
STABILITY FOR BRITAIN.

IT BECAUSE WE CREATED A NEW MONETARY FRAMEWORK, BY MAKING
THE BANK OF ENGLAND INDEPENDENT, AND TACKLED THE
INFLATION PROBLEM - THAT IS AT THE ROOT OF THE BOOM BUST
CYCLE OF THE PAST - THAT WE ARE BETTER PLACED TO
WITHSTAND THE UNCERTAINTIES OF THE GLOBAL ECONOMY.

INFLATION HAS BEEN BROUGHT DOWN AND IS AT ITS TARGET OF
2.5 PER CENT.  AND THE BANK OF ENGLAND HAS NOW BEEN ABLE
TO REDUCE INTEREST RATES WHILE SETTING POLICY TO MEET
THAT TARGET.

AND IT IS BECAUSE WE TACKLED THE FISCAL DEFICIT -THE 28
BILLION POUNDS DEFICIT WE INHERITED - THAT WE ARE BETTER
PLACED.  IN OUR FIRST YEAR WE TOOK THE DIFFICULT DECISION
TO WORK WITHIN THE PUBLIC SPENDING PLANS WE INHERITED AND
TO TIGHTEN FISCAL POLICY - WITH A REDUCTION IN BORROWING
OF 20 BILLION POUNDS LAST YEAR, AMOUNTING TO 3.5 PER CENT
OF GDP FROM FINANCIAL YEAR 1996-97 TO FINANCIAL YEAR
1999-2000.

AND JUST AS WE HAVE CONSISTENTLY TAKEN A PRUDENT AND
CAUTIOUS APPROACH TO MANAGING THE PUBLIC FINANCES, WE
WILL CONTINUE TO DO SO.  I WILL OF COURSE BE DELIVERING
THE PRE BUDGET REPORT ON 3 NOVEMBER, WITH THE HALF YEARLY
ASSESSMENT OF THE ECONOMY AND THE PUBLIC FINANCES WHICH
EVERY CHANCELLOR GIVES.  BUT I CAN SAY - AS I SAID LAST
JULY - THAT OUR PLANS AND PROJECTIONS HAVE BEEN BASED ON
CAUTIOUS ASSUMPTIONS WHICH HAVE BEEN AUDITED BY THE
INDEPENDENT NATIONAL AUDIT OFFICE, INCLUDING A CAUTIOUS
AND REALISTIC ASSUMPTION ABOUT TREND GROWTH - ONE QUARTER
PER CENT A YEAR LOWER THAN THE CONSERVATIVE ASSUMPTION.

IT IS ONE OF THE CENTRAL FEATURES OF OUR NEW SPENDING
REGIME THAT WE BUILT IN MARGINS TO COVER UNCERTAINTIES,
INCLUDING THE RISK OF SLOWER GROWTH AND ITS EFFECT ON
REVENUES.  AND WE HAVE LAID OUT ,AS OUR NEW CODE FOR
FISCAL STABILITY REQUIRES, CLEAR FISCAL RULES WHICH WE
WILL ACHIEVE OVER THE ECONOMIC CYCLE AND WHICH EXPLICITLY
ALLOW THE AUTOMATIC STABILISERS TO OPERATE IN PERIODS OF
MORE MODERATE ACTIVITY.
 
THE PRE BUDGET STATEMENT I WILL MAKE TO THE HOUSE OF
COMMONS IN TEN DAYS TIME WILL SHOW THAT IN AN UNCERTAIN
AND UNSTABLE GLOBAL ECONOMY WE IN BRITAIN ARE STEERING A
STABLE COURSE FOR BOTH OUR NATIONAL ECONOMY AND OUR
PUBLIC FINANCES.  IT WOULD NOT BE IN THE NATIONAL
ECONOMIC INTEREST FOR US TO BE DIVERTED BY OPPORTUNIST
CALLS FOR EMERGENCY CUTS IN PUBLIC INVESTMENT WHICH ARE
NOT JUSTIFIED ON ECONOMIC GROUNDS.

FOR IT IS BECAUSE OF OUR PRUDENT MANAGEMENT OF PUBLIC
FINANCES - INCLUDING LAST YEARS 20 BILLION POUNDS CUT IN
THE DEFICIT - THAT WE REMAIN ON TRACK TO MEET OUR STRICT
FISCAL RULES OVER THE ECONOMIC CYCLE WHILE MAINTAINING
OUR COMMITMENT TO AN ADDITIONAL 40 BILLION POUNDS FOR
IMPROVEMENTS IN HEALTH AND EDUCATION.




# = pounds sterling