Clarke will lay out plan for recovery

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The Independent Online
KENNETH CLARKE, the new Chancellor, will commit himself to nurturing Britain's fledgling recovery in a Mansion House speech on Tuesday that will cover the entire sweep of his economic policy.

Departing from the usual tradition in which the keynote City speech is concerned solely with monetary policy, the Chancellor will also dwell on his approach to public spending and taxation in the November Budget. He will stress the Treasury's new sensitivity towards business and manufacturing industry.

The Chancellor is also expected to place more explicit emphasis than his predecessor on the role of the pound in anti-inflation policies. He is a long- time believer in the advantages of managed exchange rates and the European Monetary System.

But Mr Clarke is unlikely to show his hand on a base rate reduction at this early stage, despite predictions that official figures out this week will point to anaemic recovery. Eddie George, the incoming Governor of the Bank of England, has in effect ruled out a further cut in rates.

A senior Treasury official said the Chancellor was unlikely to depart radically from the policy set out since Black Wednesday, the key element of which is an inflation target of 2 per cent with a range of 1 to 4 per cent. Mr Clarke is a long-standing member of the Cabinet's key economic committee, EDX, receiving all its policy papers.

This week, Mr Clarke could face the first rise in unemployment for four months and the second consecutive monthly decline in retail sales, if City forecasts prove correct.

Roger Bootle, chief economist at Midland Global Markets, said: 'The vertical take-off in economic activity in the early part of 1993 has slowed to a gentle ascent.' Consumers still carry a huge stock of debt and spending is set to tail off in the second quarter.

Predicting that Mr Clarke will be forced to cut rates from 6 per cent, Mr Bootle said: 'While there is next to no danger of a double-dip, slower growth may well feel like one. For the Government, a recovery that doesn't feel like one is no recovery at all.'

Some respite for the Chancellor may come on Tuesday when figures for April factory output are forecast to show a gentle 0.3 per cent increase, reversing a slight decline in March. But weak oil output may depress overall industrial production. On average, the City expects industrial production to rise a bare 0.2 per cent.

Analysts expect the following day's figures for retail sales to show a 0.4 per cent drop in May, following the 0.3 per cent decrease the previous month.

The jobless total is expected to climb by several thousand when figures for May are issued on Thursday. The number of people out of work and claiming benefit fell by about 26,000 in both February and March, but the decline levelled out in April to show a small fall of 1,400.

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