Government forecasts called 'optimistic'

|PIC1|Government forecasts for economic growth are above consensus and based on a questionable premise that Britain is better equipped than other nations to withstand the credit crisis, a parliamentary committee said on Monday.

Parliament's Treasury Select Committee, which is charged with scrutinising economic policy, said the finance ministry had also given little evidence of analysis of the risks to finance minister Alistair Darling's economic estimates.

"The Treasury's optimism is based on its contention that the UK economy is better placed than other OECD economies in the face of market turmoil," the committee said in a report on Darling's first budget in March.

"We remain concerned that some of the economy's characteristics that have proven beneficial during past crises might prove to be conduits through which the current problems in global financial markets are transmitted to the UK real economy."

Those characteristics include rapidly rising house prices, close ties with the United States and an increasing dependence on the financial sector, the committee said.

Darling has forecast the economy will grow between 1.75 and 2.25 percent this year and then recover to expand by 2.25-2.75 percent in 2009.

The median forecast of economists polled by Reuters is for growth of 1.8 percent this year and 1.9 percent in 2009.

Most economists argue Britain is set for a marked slowdown in growth this year as the credit crunch spreads to affect households and not just the already hard-hit financial sector.

"Should those risks crystallise, the government would have extremely limited scope, under the fiscal rules as currently defined, to take further fiscal measures to support monetary policy," the committee said.