§ Before moving on to specific tax and spending measures, let me deal briefly with the economic background. In 1994, the economy grew by around 4 per cent., fuelled by the success of British exporters overseas. No mature industrial economy could easily sustain those rates of growth without risking a rise in inflation. That is why towards the end of last year I raised interest rates. In the event, slower growth in the world economy has reduced the growth of British exports. British exporters are well placed to compete in markets overseas. For example, we now have a current account surplus with the so-called tiger economies of south-east Asia. But our key markets in America and Europe are growing by less than they were in 1994.
§ The growth in this country will be sustained because the fundamentals of the economy are strong as a result of our economic policies. We have low inflation, sound public finances and more competitive businesses. The change in the pace of growth this year is not unique to Britain and has been seen in the United States, Germany and elsewhere. No recovery ever proceeds at a constant rate of growth throughout. In fact, this recovery is proving to be the steadiest seen in Britain for a generation.
§ Many commentators confidently predicted that the higher tax and lower public spending of the last three Budgets would knock the recovery off track. They were wrong. Consumer spending has been on a firm upward trend since the recovery began. With the necessary tax increases behind us, consumer spending should grow further next year and the year after.
§ Businesses have responded to the economic recovery by investing for the future. Manufacturing investment has grown by 12 per cent. over the past year. The conditions for further increases in investment—low inflation, low interest rates, low corporate tax rates and healthy company balance sheets—remain in place.
§ For the economy as a whole, the forecasts, which I am publishing in the Red Book, are for growth of 2 per cent. this year and 3 per cent. next year.
§ My last two Budgets have strengthened the foundations of the economy and put the recovery on to a secure footing. I have reduced public spending and borrowing plans to create more room for the wealth-creating part of the economy to grow. I have helped businesses. And I have improved the workings of the labour market.
§ The decisions I took and the policies I pursued in those Budgets have helped to reduce pressure on me to increase interest rates further, without jeopardising my inflation target.