THE BRITISH economy has weathered the worst shock in a decade and is now estimated to be growing even faster than previously thought.
Gordon Brown upped his forecasts for the next couple of years and - in a highly significant move - the estimates of the long-term growth rate.
The Treasury now believes that the trend rate of growth is 2.75 per cent, rather than 2.5 per cent. As a result, the Government will now use growth of 2.5 per cent, rather than 2.25 per cent, when putting together the public finances.
In a crucial move, the Chancellor has decided to stick with his confident forecast for growth this year of 2 to 2.5 per cent that he gave in November's pre-Budget report (PBR). But this leaves him at odds with almost all the major think-tanks. The International Monetary Fund and the Organisation for Economic Co-Operation and Development, as well as the European Commission, have revised their forecast for gross domestic product growth for 2002 down to 1.7 or 1.8 per cent.
There is little support for the Chancellor's view in the City of London, either. A survey of economists' forecasts published yesterday by the Treasury showed on average a prediction for 1.9 per cent growth.
Mr Brown said in the wake of 11 September there was a sharp fall in business confidence, stock markets and a surge in oil prices.
"In the past, when the world faced a downturn, it was Britain that usually entered weaker and suffered longer with higher unemployment - successive governments unable to sustain economic growth because they were constrained by high inflation and high borrowing," he said. "But this time, from a platform of low inflation and fiscal discipline, both delivered through the new monetary and fiscal framework, we have been able to steer a steady course of stability."
The pace of the ensuing recovery will be much faster than the Treasury had expected in November. The economy is expected to grow by between 3.0 and 3.5 per cent in 2003 and by 2.5 to 3.0 per cent in 2004.
This compares with the PBR forecasts of 2.7 to 3.25 per cent and 2.25 to 2.75 per cent respectively.
Economists were surprised by the strength of the forecasts. "That figure of 3.5 per cent is strong and my only concern would be that that was a hostage to fortune," said Shamik Dhar, UK economist at Morley Fund Management.