Central Bank urges caution on budget spending

"There is a risk of overheating pressures emerging, given, in particular, the conditions in the labour market,” the Central Bank analysis stated.

The Central Bank warned that discretionary Government spending increases or tax cuts outside of its own 5% spending rule would add significantly to demand and inflation in the coming years. File Picture: iStock

The Central Bank has urged caution on Government spending, stating that even modest additional increases could add to inflation and run the risk of the economy overheating.

National spending rules instituted by this Government allow net expenditure to grow at 5% per year to keep up with growing costs. However, the Central Bank is warning that the economy is currently at capacity — largely due to a very tight labour market — with the average compensation per employee due to increase by 6.2% in 2023, 5.9% in 2024, and by 4.4% in 2025.