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UK: British Economy Only Slightly Harmed By Iraq War

Experts says Britain's economy has suffered only slightly from the secondary effects of the war on Iraq. But Gordon Brown, the chancellor of the Exchequer, said in a speech kicking off the start of the financial year that the war will be a factor.

London, 10 April 2003 (RFE/RL) -- Britons on 9 April momentarily turned their attention away from the war in Iraq to focus on the state of the domestic economy and Chancellor of the Exchequer Brown's traditional April budget speech to Parliament, broadcast live to the entire country at noon.

Many Britons see the traditional speech -- which outlines spending plans and changes in taxation -- as a positive example of public accountability and a firm indication price changes on basic goods like cigarettes and gasoline. The general public generally follows with keen interest the speech, which this year was delayed by a week because of the war in Iraq.

Brown mentioned the war in the introduction to his speech, stressing that it was the first time in 50 years that a budget announcement was taking place while British forces were at war.

"I can confirm that I have set aside 3 billion pounds ($4.69 billion) in a special reserve, available to the Ministry of Defence, so that our troops continue to be properly equipped and given the resources that they deserve and have a right to expect," Brown said.

He added he was also adding 240 million pounds ($375 million) for postwar humanitarian aid to the Iraqis, and 330 million ($516 million) pounds for counterterrorist measures at home.

Brown stressed this spending would not reduce Britain's "record investment in schools, hospitals, transport, and policing." But despite an otherwise optimistic tone, he also admitted the British economy is now doing worse than predicted.

Graver concerns about the Iraq war's effect on the economy were underscored in a recent speech by London Mayor Ken Livingstone: "The economic input of the present situation is noticeable and some sectors, undoubtedly, are affected, but we will make absolutely sure that it is not in any sense a desperate situation. Two trends stand out: There is evidence of a turn-down in corporate and business travel, but so far a relatively normal situation in 'budget' and 'medium' price sectors. There is also a turn-down in people coming into central London. I am working with the business and tourist industries to deal with this."

But most British economists say the impact of the war has so far been minimal, with the overall cost of the British campaign estimated at not much more than Brown's promised 3 billion pounds. This is a small amount, for example, in comparison with the budgets for national health care, education and other public spending.

More than the war, the overall economic slowdown affecting all of Europe is proving a greater drag on the British economy. But both Gordon and European Commission forecasts predict the British economy will grow by some 2.2 percent this year -- twice the rate predicted for the eurozone countries.

Charles Jenkins, director for Western Europe at the Economist Intelligence Unit, tells RFE/RL that the war has dealt the economy only a minor setback: "Gordon Brown also blamed global developments generally -- and the sluggish performance of the Euro-area in particular -- for things that are not going as well as he might hope. It is true that the tourist industry in London and a few other areas has been hit by lack of Americans coming, and it has had perhaps some effect on performance of British Airways. But I do not think that the impact of the war at the moment is one which is more than marginal to the overall macroeconomy."

Jenkins explained that other, more important factors, have been affecting the British markets: "The reasons for reluctance to spend money lie -- in terms of the general public -- in the high level of household indebtedness, which has reached levels showing the scene just before the last major recession in the early 1990s. And business also is over-indebted and has invested a great deal recently. So the capacity is more than sufficient and there simply is not either the need or the money to invest more at the moment. So, I do not think that, in either case, the main determining factor has to do with the war."