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Oil Prices

Volume 450: debated on Wednesday 11 October 2006

To ask the Chancellor of the Exchequer pursuant to his answer of 19 July 2006, Official Report, column 521W, on oil prices (1) what effects his Department’s econometric model predicts of a sustained $10 per barrel rise in the world oil price caused by supply constraints or disruption in each of the five subsequent years compared with a base forecast on (a) gross domestic products (GDP), (b) GDP growth, (c) consumer price inflation, (d) the unemployment rate, (e) the employment rate, (f) Government borrowing as a percentage of GDP, (g) policy interest rates, (h) balance of trade as a percentage of GDP, (i) the current account of the balance of payments as a percentage of GDP, (j) public debt at end year as a percentage of GDP, (k) the effective exchange rate and (l) the real effective exchange rate; and what other economic assumptions are made in each case; (90272)

(2) what effects his Department’s econometric model predicts of a sustained $10 per barrel rise in the world oil price caused by demand pressures in each of the five subsequent years compared with a base forecast on (a) gross domestic products (GDP), (b) GDP growth, (c) consumer price inflation, (d) the unemployment rate, (e) the employment rate, (f) Government borrowing as a percentage of GDP, (g) policy interest rates, (h) balance of trade as a percentage of GDP, (i) the current account of the balance of payments as a percentage of GDP, (j) public debt at end year as a percentage of GDP, (k) the effective exchange rate and (l) the real effective exchange rate; and what other economic assumptions are made in each case.

To estimate the effects of a sustained $10 per barrel rise in the world oil price would require a wide range of additional auxiliary assumptions to be specified such as, for example, the response of fiscal and monetary policy makers and any movements in the sterling exchange rate.

Therefore, the Treasury does not run simulations on its macro-economic model in response to parliamentary questions on grounds of disproportionate cost associated with such a wide range of assumptions needed in order to specify simulation design.