Confidence in economy rises: Output forecast moves into line with Treasury's summer prediction

CITY and academic economists are becoming increasingly confident about economic growth and less pessimistic about the trade deficit, according to the latest survey of independent forecasters carried out by the Treasury.

The Chancellor of the Exchequer has said that a strong recovery would relieve pressure on him to cut the Government's borrowing by reducing public spending or raising taxes again. But, despite their higher growth forecasts, the economists are only marginally more optimistic about the public sector borrowing requirement.

The 31 forecasters on average expect national output to be 1.8 per cent higher this year than in 1992, up from an average forecast of 1.6 per cent growth last month. The forecast is now in line with the prediction in the Treasury's unpublished summer forecast.

The increase is the largest since May and leaves the forecasters more upbeat than at any time since the aftermath of sterling's departure from the European exchange rate mechanism last September. However, their forecast of growth in 1994 is unchanged at 2.7 per cent, barely enough to put downward pressure on unemployment.

The increase in the growth forecast is largely explained by revisions to output figures for the first half of the year rather than optimism about the strength of recovery in the second half. Similarly, the fall in the average forecast of this year's current account deficit - from pounds 15.6bn to pounds 13.6bn - is mostly explained by revisions.

Inflation is expected to average 2 per cent during the fourth quarter, but 3.2 per cent if mortgage interest payments are excluded. At the end of 1994 underlying inflation is tipped to have risen to 3.7 per cent, well above the Government's 1-2.5 per cent target. The PSBR is expected to be pounds 46.4bn this financial year, falling to pounds 38bn next year.