Economic growth may be headed for its best annual rate since the millenium, yet figues suggest public and private spending could be knocked according to figures from the Item Club.
The Club, made up of accountants, economists and other specialists, says there is a risk of public spending plans being challenged by the future state of the economy.
The housing market is unlikely to 'crash', instead going for a 'soft landing', but there is a big challenge in the price of oil.
Predictions for the UK economy by the Club last year relied on a price of $37 per barell - well below recent highs of more than $50 for New York crude.
Although the UK is far better placed to withstand such an energy price shock than, say, in the 1970s, there is still an inflation threat created, which could force interest rates up further than currently expected before the current rates cycle turns.
The biggest threat to confidence in government policy comes in the continued undershooting of tax revenue targets, which threatens to corrupt the so-called Golden Rule, which states the government can only borrow to invest over the course of the economic cycle.
The shortfalls are not big by measured standards, but their persistance in the face of projected GDP growth for 2004 of 3.6% means the government is likely to end the cycle next year in deficit overall, breaking the rule.
The Club forecasts the shortfall at £13bn, or 1.1% of GDP, which means taxes would have to be raised or expenditure cut in the next cycle to be able to claim the rule is working.IFAonline
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