LONDON, Dec 18 - Following are highlights of Chancellor of the Exchequer Gordon Brown's testimony on Thursday to parliament on last week's pre-budget report:
Repeats gap between the two measures expected to narrow to 0.5 percentage points in two years' time. Brown says Treasury believes the new HICP target measure of inflation is a better measure than RPIX. Says there are distinct advantages in having an internationally-recognised measure and one based on a geometric rather than arithmetic mean. Adds he has been thinking about changing the measure since 1997 but wanted to give the monetary policy system time to establish its credibility before changing. Brown says government has kept well to departmental spending plans in the past three years and that investment plans were now moving ahead.
Brown said growth in house prices and consumer demand has been moderating recently and that he expects the economy will be able to sustain more balanced growth. Asked if the housing market would enjoy a soft landing, Brown said he predicted house price growth to moderate and there have been recent signs of this. Brown repeated that his budget plans were affordable and that current policy was right for economic conditions. Brown said he expected improved trade would boost the economy. He said the exchange rate with the euro was more favourable than it was a few years ago. He refused to comment on the dollar exchange rate. Brown said the saving ratio was not the lowest it has been and that it was higher than it was in the 1980s. Brown said: "I don't think we are over optimistic about the output gap." Chief economic adviser Ed Balls said: "The output gap is the same profile as at budget time." He insisted it was based on a "cautious view".
He said while some people may say the Treasury estimate of the output gap was optimistic, one could also argue it was pessmistic. Balls said that before Labour took power in 1997, previous governments had not published estimates of the output gap. "It is the strength of the system in the UK that we have an open debate about this," Balls said. Brown said: "We are meeting our fiscal rules and will continue to meet our fiscal rules."///www.reuters.com