THE Government was last night facing a crucial week in which it has to
persuade the markets and the country that it has a credible economic
policy.
Chancellor Norman Lamont will attempt to offset deepening gloom in
manufacturing industry by promising policies for growth in his Mansion
House speech to City bankers at London's Guildhall.
The Prime Minister drove that message home yesterday with a pledge
that more interest rate cuts would follow ''when prudent''.
Even that, however, was too little to satisfy the growing band of
sceptics inside the Tory Party. Former party chairman Kenneth Baker
publicly called for a cut in interest rates from 8% to about 4%.
On Thursday, Mr Lamont will have to convince an audience which will
pick over his every word that he is in control of the economy and can
lead the country out of recession.
His reputation has taken a battering in recent weeks with the collapse
of the value of the pound and the ignominious withdrawal from the
European exchange rate mechanism.
Mr Major said on BBC Radio 4's The World this Weekend programme: ''The
consistent cry from homeowners and from businessmen has been to get
interest rates down.
''Every 1% off interest rates is worth #1 billion to industry. Every
1% off interest rates means more money in the pockets of people with
mortgages to spend in the high streets.
''So we do not want to imperil the fact that we have been able to get
interest rates down and will look, when it is prudent to do so, for
further reductions.''
However, a survey by the Confederation of British Industry this week
is expected to show a sharp fall in business optimism.
The City is anxious to see what methods the Government will employ to
handle the economy since the discipline of the ERM evaporated on ''Black
Wednesday''.
Mr Lamont is expected to
expand on the Government's methods for guiding the economy as he
outlines his new strategy for growth.
He faces an uphill battle, however, in convincing doubtful markets
that economic policy -- although greatly changed -- is back on course.
Mr Baker told LWT's News Weekend that the Government must come forward
with a new economic package to restore confidence and boost recovery.
''The fact that the pound is now floating is something I welcome. When
we came out of the ERM, I called for 8% interest rates and I was called
irresponsible,'' he said.
''When interest rates got down to 8%, I urged 6% and was again called
irresponsible -- but now we're heading for 6%.
''I think we should be below that, possibly 5 or 4%.''
Large construction projects must not be cut in the public spending
squeeze and if the Government felt it could not afford them it should
work in partnership with the private sector, he said.
Environment Secretary Michael Howard stressed that low inflation and
low interest rates were still the Government's aim.
''We want to get interest rates down as much as possible. We don't
want to pursue policies which might in the short term be job creating
but would put interest rates up and do more damage to jobs than anything
else,'' he said on BBC TV's On the Record programme.
He said there were already signs of an export-led recovery, which he
believed would lead Britain out of recession.
He also outlined the severity of the coming public spending squeeze by
hinting that one of the areas which could suffer is the #2 billion
earmarked to help ease in the council tax.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article