Chancellor claims credit for economic cheer

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The Independent Online
Kenneth Clarke claimed the credit for Christmas good cheer on the economy, with new figures yesterday showing the fastest growth in living standards since 1989 and a healthy balance of payments.

"The British economy will enter the new year in the best shape for a generation. I will stick to policies that will enable us to keep it up," the Chancellor said.

The Prime Minister, John Major, made plain the Government's hopes that the economy will give it an electoral boost. "Britain's success is too valuable, too important to all of us to be put at risk," he said in a speech last night.

The stock market celebrated the latest good news, following a record drop in unemployment and a glowing report from the OECD earlier this week, by setting a record yesterday.

The FTSE 100 index climbed 26 points to a closing record 4,077.6, after bobbing above 4,100 in afternoon trading.

It was partly boosted by gains on Wall Street. The Dow Jones index was 24 points higher at 6,497.86 by late morning. This followed a 127-point rise on Thursday, the biggest one-day jump in US share prices since 1987.

However, UK consumer confidence has fallen this month from November's record level, despite the recent run of good news on the economic front. People have become gloomier about both the general economic situation and their personal finances according to a survey carried out for the European Commission. It also showed that expectations of future inflation have increased. The increase in GDP in the third quarter was smaller than previously estimated, official statisticians said yesterday, but this was due to upward revisions to the level of output in the second quarter. GDP grew 0.7 per cent during the third quarter, or 2.4 per cent year-on- year. Growth in the second quarter was revised up to 0.6 per cent, or 2.3 per cent year-on-year.

Investment spending fell during the quarter, dominated by a 7.3 per cent drop in capital expenditure by the privatised electricity, gas and water companies to the lowest level so far this decade.

Consumer spending made the main contribution to growth, driven by big increases in disposable incomes adjusted for inflation. Thanks to earnings growth and tax cuts, the annual rate of increase in real incomes rose to 4.6 per cent during the July-September quarter, the fastest since early 1989.

Separate figures showed that the balance of payments worsened slightly during the third quarter, showing a tiny deficit of pounds 71m compared with a small surplus of pounds 344m the previous quarter. The dip was due to reduced income from investment.

The balance on "invisible" earnings - services, investment income and transfers - nearly offset the trade deficit, and is likely to set a record.

The invisibles surplus of pounds 8.9bn for the first nine months of 1996 has already beaten last year's record.

Profits sent abroad by companies which have invested in the UK reached a record pounds 3.6bn in the third quarter, but remained only half the near- record pounds 7.1bn earned on UK investment overseas.