CHECK AGAINST DELIVERY
27 NOVEMBER 2001
The task of this Pre-Budget Report is:
- to rise to the global economic challenge facing our country and;
- to set out how - upon a foundation of stability and growth - we can, and will, build a stronger, fairer Britain even in an uncertain world.
So Mr Speaker, I start with the state of the world economy.
America is in recession. Japan is in recession as are other Asian economies like Singapore, Taiwan and Hong Kong. The euro area is slowing rapidly. And world trade growth has slowed dramatically from its 12 per cent growth last year to only 1 per cent this year.
Growth among the main G7 economies is expected to slow from 3.5 per cent last year to just 1 per cent this year.
Indeed for the first time for three decades each region of the world has slowed at one and the same time and more sharply than before.
And independent forecasters expect the world downturn to be deeper and longer with economic growth in 2002 of just 1.5 per cent in the euro area, 0.7 per cent in the USA, and minus 0.6 per cent in Japan.
No one country can insulate its economy from such a synchronised slowdown - and in addition no one can yet judge the full and final impact of the traumatic and tragic events of September 11th.
These testing times demand decisive action.
So in Britain, interest rates have been cut seven times in 9 months. And Britain''s interest rates are now the lowest for nearly 40 years.
And with public spending and public investment rising this year, our fiscal policy is - at the right time of the economic cycle - complementing and reinforcing monetary policy and thus stability and growth.
In the past, when the main economies of the industrialised world have gone into a downturn, Britain has invariably come off worst.
Indeed, in the past, in every major global slowdown since 1945, Britain has entered weaker, suffered longer, experienced higher inflation and endured higher unemployment.
So it is at a time like this that our new monetary and fiscal regime - Bank of England independence, the symmetrical inflation target, our new fiscal rules and the tough decisions we have taken to reduce debt - is being tested.
When the world turned down in 1998, decisive action by the newly independent Bank of England ensured the British economy sustained its growth.
Throughout 2001 Britain has continued to grow.
And monetary policy has played its full part.
First, the Bank of England has been able to take pre-emptive action because British inflation has been at or near our target of 2.5 per cent for four years, in contrast to inflation rising to 10 per cent when the world economy slow
