Brussels upgrades forecast for growth in Britain: Clarke warns European slump could threaten recovery here Credit figures point to modest upswing in spending

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THE EUROPEAN Commission yesterday revised upwards to 1.7 per cent its prediction for British economic growth this year, but Kenneth Clarke, the new Chancellor, warned that the European recession could threaten Britain's recovery.

Britain's economic performance was one of the few bright spots in otherwise gloomy predictions of European recession and soaring unemployment presented to a meeting of EC finance ministers yesterday. Mr Clarke was putting in his first European appearance as Chancellor.

He said Britain's best contribution to supporting growth 'is to stick to our PSBR forecast of pounds 50bn this year. I have to consider appropriate measures to make it work.'

The Commission, echoing recent predictions from the OECD and IMF, revised its forecast for 1993 UK growth upwards by 0.4 percentage points, a move understood to mirror the Treasury's internal summer forecast. But EC growth over the same period has been revised downwards. Forecast in February to grow by 0.8 per cent, output is now expected to shrink by 0.3 per cent.

The effect on the EC unemployment total, which according to April figures released yesterday hit an eight-year high of 10.4 per cent, would be devastating, said the EC Economics Commissioner, Henning Christophersen. By 1994, 11 per cent of the Community, or 18 million people, will be out of work.

Mr Clarke stressed that the British recovery risked being stunted by the European slowdown. 'There is no doubt the recession is hitting a lot of our EC partners. Recovery in Europe is very important to us as it affects our export markets. I hope to find a spirit of co-operation here to get the EC going again.' The EC accounts for 57 per cent of UK exports and a slowdown in Germany, France and Spain is particularly worrying.

Later, Mr Clarke said he was content about UK prospects. 'There seem to be signs of recovery and my principal job is to sustain that. I was sitting round a table with Britain's major clients and I would like to see our major markets doing better. I take no pleasure from the fact that the outlook in Germany and in our other Community partners as a whole is worrying.'

But the latest figures on the UK economy, out yesterday, showed that consumers borrowed a greater-than- expected pounds 194m in April - a further sign that a moderate upswing in spending is under way.

The Chancellor admitted that Britain still has problems, saying that in domestic terms his chief consideration was to restrain the deficit: 'We are determined to get public spending right in Britain.' But he added: 'Every country faces public financing difficulties and we are happy to tackle ours. I found today I am far from alone in facing this problem.'

Mr Clarke's remarks were well received by the financial markets, where speculation over interest rate cuts flickered briefly. The FT-SE 100 index rose by 14.9 points to close at 2844.8, though that was a shade below the day's best levels.

The new Chancellor again made it clear that sterling's re-entry into the ERM was 'neither on the political or economic agenda at the moment. We cannot ignore that the conditions under which we joined last time led to Black Wednesday.'

Meanwhile, the April increase in net lending to British consumers, by building societies, bank credit cards and other lenders, was little changed from the pounds 196m rise in borrowings in March, after repayments are taken into account.

In the three months to April, which provides a smoother guide to underlying trends, net lending to consumers increased by pounds 444m against pounds 304m in the three months to January.

(Graph omitted)

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