Bank of Ireland economist Dan McLaughlin has rejected suggestions that the slowdown of the housing market should force the government to consider its fiscal position.

Dr McLaughlin branded talk of a need for tax cuts in the forthcoming budget as 'ridiculous' when the surplus on current daily spending maybe €6 billion next year.

The Bank of Ireland's Quarterly Economic Outlook, published today, says that the economy will see growth of four per cent in 2008, before recovering to five per cent in 2009.

The change is mainly due to a sharp fall in house building. House completions are set to drop to 72,000 this year from over 88,000 in 2006 and it has been forecast that they will decline further to 58,000 next year.

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Economists at Davy Stockbrokers recently called for tax cuts in the budget. Dr McLaughlin said the public finances should not be a cause of concern, but he expected little to happen in the budget.

Dr McLaughlin said he does not take heed of consumer confidence surveys which are showing consumers' mood at a four-year low: "My view is that consumer spending follows wages and employment. Both will still be growing, giving scope for a 6.5 per cent rise in spending in money terms, or four per cent in real terms, after inflation of 2.5 per cent."

McLaughlin Dr McLaughlin said that, in the long run, it was good for the economy, and the housing market, that builders had cut back so rapidly: "House prices are falling, but rents are rising. That shows that the underlying demand for housing is still strong but for now the marginal buyer is renting, until houses become more affordable. I expect construction to pick up to 60,000 units a year from 2009."

The bank's quarterly review sees consumer spending growing by 4.5 per cent in 2008, after six per cent growth this year.

(GK/JM)