Tax relief in the new forecast

BUOYANT spending by consumers and Government will keep the British economy growing by 2.1% this year. The public finances will worsen by £18bn over four years, but that is not enough to require tax rises. That is the optimistic forecast from the National Institute for Economic and Social Research.

It thinks public spending could rise £8bn above the Government's projections by 2005. Health spending could rise by a further £10bn.

But the Institute argues that all this could be funded because the Treasury has piled up a surplus of more than £50bn since 1999. Under its 'golden rule' of balance over the economic cycle, the Treasury can use the £50bn to meet any shortfall until the cycle ends - a date, conveniently, which cannot be precisely determined.

Although economic growth will slow from 2.5% to 2.1% this year, the Institute's Martin Weale said: 'Growth is only slightly below trend. The gloom has been overdone.' There was some cheer too from the US. Weekly jobless claims rose by only 30,000 and the four week average was the lowest since August.