The government's new plans for departmental spending are affordable, but the fiscal loosening does pose a threat to the outlook for inflation and interest rates.

Growth will pick up next year as export performance improves because of greater buoyancy in world trade and the fall in the exchange rate.

In order for inflation to stay on target in 200I, interest rates will have to rise by half a percentage point by the start of next year.

The upward pressure on interest rates will be limited by a decline in the growth of private sector spending as households increase their saving rate and non-manufacturing business investment increases less rapidly.

Inflationary pressures should also be restrained by a recovery in productivity growth.