The capital markets tolerated it for longer than they should have done, and the dollar peg has ensured that the economic consequences have been nothing short of disastrous. If Mr Duhalde is as good as his word, and turns his back on the world, as Argentina has so often done before, then he will be doing his countrymen no service at all.j.warner independent.co.uk. The treasury has taken an uncharacteristically large gamble with its forecast that the UK economy could grow as fast in 2002 as it did last year, according to a survey of City economists. Taking the mid-point, this means Mr Brown believes the economy will grow in line with the 2.25 per cent assumption used in compiling his spending plans.

The economy is expected to show growth of 2.4 per cent for 2001.The measure of his wager was underlined by a survey from Cambridge Econometrics, published yesterday, that said growth would be just 1.5 per cent. With total economic output coming in at around £1 trillion, the difference is equivalent to around £7.5bn, or 35 hospitals.Under Labour, the Treasury has close to a 100 per cent forecasting record, correctly predicting weak growth in 1999 when most people expected a fallout from the Asian crisis Once again, the Square Mile and Whitehall disagree. The latest forecasts from within the City and academia are for GDP growth of 1.8 per cent – almost a full percentage point below the Chancellor’s. This view – give or take a fraction – is unanimously shared by the International Monetary Fund, the Organisation for Economic Co-operation and Development and the European Commission. Quite a weight of contrary opinion.The Government’s optimism is spread across the UK economic activity. The Treasury forecasts higher domestic demand, household spending, fixed investment and state spending than the City expects.

Only on manufacturing output – where both sides forecast a 0.5 per cent contraction – is there agreement. Almost everyone agrees that manufacturing, which is still suffering the excesses of the hi-tech boom of the late 1990s will have another tough year, compounded by the almost minimal growth of exports in the wake of the 11 September tragedy.Forecasts for the UK economy must, therefore, rest initially on domestic demand – public and private. The Treasury believes government spending will grow almost 5 per cent next year. Given the huge volumes of money being poured into the spending departments, this figure looks quite realistic. The issue is whether Whitehall will manage to spend the money it is being given. The Government’s own figures show that departments under spent by £7bn, or 3 per cent, in the financial year to April 2001.

For Commerzbank, which predicts 2.2 per cent growth next year, the PBR unveiled a significant extra amount of fiscal loosening. Economist, Peter Dixon, said: “Following years of fiscal prudence it appears the Government is now ready to spend the money necessary to raise the quality of public services.”The outlook for consumer spending is less clear. Last year saw a surge in house prices, record borrowing, strong retail spending and only a marginal rise in the jobless total and commensurate fall in employment. The outturn this year will depend on whether the seven cuts in interest rates that have pushed borrowing costs to a 37-year low, falling oil prices, and the boost to public sector spending, can offset the impact from rising unemployment and falling share prices. Many economists believe consumer sentiment and behaviour are about to turn. Claimant count unemployment rose by 13,000 between September and November while the more respected ILO survey indicated a rise of 42,000 between April and October.Meanwhile, most major lenders forecast house price inflation slowing from around 12 per cent in 2001 to just 5 or 6 per cent next year. The FTSE 100 share index fell almost 17 per cent last year and many City forecasters are looking for as little as 3 per cent growth this year.