Confidence 'at highest level for five years'

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The Independent Online
THE Confederation of British Industry is expected to report today that there has been a marked improvement in business confidence to its highest level for almost five years.

At the same time Eddie George, deputy governor of the Bank of England, who was appointed on Friday to take over as Governor in June, underlined his determination yesterday to speak out on the Government's inflation performance.

Speaking on The Money Programme, Mr George, a supporter of greater independence for the Bank, also expressed his own belief that responsibility for the success of anti-inflation policies should lie with the Bank.

The CBI's latest quarterly Industrial Trends survey is expected to show that the balance of firms that are more rather than less optimistic than four months ago has improved from minus 23 per cent in October to a positive 11 per cent.

This would be the highest level of confidence recorded by the CBI among British businessmen since April 1988. It reinforces the positive findings of last week's quarterly survey by the British Chambers of Commerce.

The improvement in optimism revealed by the CBI is in comparison with the survey in October, when business confidence had been hard hit by sterling's withdrawal from the ERM. Other measures in the latest survey, including expectations of output growth, are thought to show only a modest improvement.

The CBI will not want the Treasury to interpret the latest survey as evidence of the need to hold interest rates up. Financial markets are meanwhile pondering whether the appointment of Mr George signals a shift to a harder line on interest rates

Mr George yesterday made clear the Bank's willingness to pass judgement on the Government's inflation performance in a series of quarterly reports which begins next month.

'If we think that the inflation strategy is going off-course we have the obligation to make that known publicly without getting into questions of disputes about tactics or details of policy.'

While giving priority to monetary stability, Mr George also saw Bank of England independence as important.

'My personal view is that there would be merit in dividing the Government's responsibility for setting a strategy in relation to inflation much in the way that they have but then giving operational responsibility to the Bank for actually performing that strategy, carrying it out and being accountable back to government for the way in which they did it.'

However Lord Lawson, former Chancellor and an advocate of a completely independent central bank, dimissed the Bank's forthcoming inflation bulletins on the same programme as 'a bit of PR'.

'If there are two discordant voices the market is always going to fear the worst,' he said. 'That is the worst possible recipe and therefore to avoid that I think that what the Bank publishes is not going to be discordant, whatever may be said in private.'