Beckett backs tough stand on rates

MARGARET Beckett, President of the Board of Trade, insisted yesterday that there was no scope for interference in the Bank of England's decision on interest rates due tomorrow.

Replying to calls from Conservative MPs and some businessmen for a cut in interest rates in order to reduce the value of the pound, Mrs Beckett said this could fuel inflation and might not work. "It is not Britain's interest rates but Britain's absence from Emu that is driving up sterling," she said.

In a speech in the City of London last night, Mrs Beckett said the strong pound was making life difficult for exporters but stable economic policy would pay dividends.

Separately, Gordon Brown, the Chancellor of the Exchequer, replying to questions from members of a House of Lords committee, said the Bank should take account of regional economic information in taking its decision.

The Chancellor added that there would be no need to manage the pound's exchange rate against the euro ahead of joining Emu and Britain would not rejoin the exchange rate mechanism. He predicted that the transition to the euro on 1 January next year would involve little financial market disruption.

The strength of sterling - which edged higher on the foreign exchanges yesterday - will be one of the key issues discussed by the Bank's Monetary Policy Committee (MPC) today and tomorrow.

While the strength of the pound is currently slowing exports and putting the brakes on the economy, some members of the MPC are also concerned that sterling could fall in future. Unless the economy as a whole is clearly slowing, that could cause future inflationary pressures.

Eddie George, Governor of the Bank of England, recently emphasised that the interest rate judgement was still finely balanced. City observers expect the MPC to be split in its vote for the fourth month running. A majority expecting no change in interest rates this week, but few will completely rule out an increase in May.

Separately in her speech last night Mrs Beckett stressed the need to resist protectionist pressures and to bring down trade barriers further.

The Government was, however, criticised for backdoor protectionism in a new report by the charity Action Aid. It called for Britain to end the practice of "tying" aid to developing countries to purchases of goods and services from British companies.

The Government abolished the discredited "Aid for Trade" programme, which had funded Malaysia's Pergau dam, last year. Just pounds 81m of the pounds 583m bilateral aid budget remains tied.

But Jeff Chinnock, author of the Action Aid report, said: "I am sure British taxpayers will be shocked to realise some of their money, which should be helping the world's poorest people, is going to subsidise business."