THE Chancellor cannot pin blame for the slowdown in the economy on soaring oil prices and the weakness of the eurozone, a leading forecaster asserts today as it cuts it own projection of 2005 GDP growth to just 1.6 per cent.

The Ernst & Young ITEM Club, which uses the Treasury's own economic model for its analysis, is the latest of a growing number of independent forecasters to downgrade its expectations of Britain’s growth prospects for the year to less than 2 per cent.

But ITEM’s chief economic adviser, Professor Peter Spencer, argues that Gordon Brown’s efforts to blame outside factors for the downturn are misplaced.

“The Chancellor is blaming the slowdown on the recent spike in oil prices and the weakness of the European economy, but this is unrealistic,” Professor Spencer said.

“The problems were plain to see at the time of last year’s Pre-Budget Report in December, but instead of addressing them the Treasury chose to dress up the UK finances for the election.”

ITEM says that the Chancellor’s problems are “home-grown”, the result of a consumer and housing slowdown he ought to have anticipated.

“The UK is actually in a unique position to benefit from high oil prices and, given the strength of the world economy, external factors cannot be blamed for the Treasury’s forecasting errors,” Professor Spencer said. “The UK economy is on increasingly shaky ground.”

Ahead of official figures tomorrow that are expected to show consumer price inflation accelerating to an eight-and-a-half-year high of 2.7 per cent, ITEM also deals a further blow to hopes that the Bank of England might boost growth with a new cut in interest rates.

The forecaster sounds a warning that, although oil prices may ease over the winter and inflation may fall back, their present level is likely to lead the Bank to keep interest rates at their present 4.5 per cent.

But ITEM concludes that, despite some consumers having overextended themselves, the household sector’s finances remain relatively robust and the housing market stable.

ITEM’s expectation of unchanged rates is founded on its forecast that growth will revive next year to 2.2 per cent, a projection dependent on continued strong world conditions and a resurgence in exports and business investment to offset weaker consumer spending.

The forecasting group also renewed warnings over the worsening state of the public finances and said that the Chancellor faced an £11 billion “black hole” in his plans.

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