Bank backs Brown as jobless rise

THE BANK of England yesterday gave its backing to Gordon Brown's optimistic forecast that Britain should avoid sliding into recession, but warned that the risks of a downturn were growing.

The Bank's "steady as she goes" forecast came despite figures from the Office for National Statistics showing that unemployment had increased on two key measures for the first time in almost six years. The claimant count rose by 6,800 in October while the ILO measure - the Government's preferred measure of unemployment - rose by 3,000 between July and September to 1,804,000.

There was a cautionary note from the Bank that growth will be less than it had earlier forecast as a result of the downturn in Asia and Russia, but its Monetary Policy Committee supported the Chancellor's view that there will be modest growth next year of about 1 per cent and it should meet its inflation target of 2.5 per cent.

The quarterly report raised the prospect of further reductions in interest rates and came as a relief to the Treasury, which had been accused of making an over-optimistic assessment in the Chancellor's pre-Budget statement.

Buoyed by the figures, Tony Blair told MPs there would be no U-turns in economic strategy in clashes with William Hague during Prime Minister's Question Time as the Tory party leader attacked the Government for complacency on the economy.

Mr Blair said there would be "difficulties for jobs and industry over the next years", but the Government was following the right policies with its fiscal and monetary rules and Bank of England independence.

Mervyn King, the deputy governor, earlier confirmed that the Bank's forecasts for growth were broadly similar to those in Mr Brown's pre-Budget statement last week. "The big picture is that the two forecasts are very much in the same territory," he said.

Mr King acknowledged that the chances of recession had increased since the Bank's last inflation report in August, although it did not believe that was the most likely outcome.

Overall, there was a one in four chance of negative growth next year compared with the one in eight chance in the August predictions. "The Monetary Policy Committee doesn't think recession is the most likely outcome, but the risks are on the downside," he said.

Mr King acknowledged that there would be job losses as a result of the slowdown next year, although he said the overall level of unemployment would "critically" depend upon the effectiveness of government measures such as the New Deal in providing work.

He said the MPC would continue to set interest rates in accordance with the prevailing conditions. "We are prepared to move as and when necessary."

The TUC general secretary, John Monks, called for a cut in interest rates next month. He said: "The continued strength in the overall jobs market is welcome, but this is no time to be complacent."

Blair adamant, page 8

Rate hopes dampened, page 21