G7 warns UK must raise rates

Brown `must keep inflation under control and maintain budget deficit reductions'

The club of leading industrial nations warned Gordon Brown, attending his first G7 summit this weekend, that the UK would need to raise interest rates and reduce government borrowing to prevent the economy from overheating.

The UK "must keep inflation pressures under control and maintain budget deficit reduction", according to the summit's economic statement. It also backed the Government's diagnosis that Britain needed to undertake reforms of the education system and welfare.

The warning about interest rates and budget policy, which emerged from the G7's normal discussion of the performance of member economies, was neither unexpected nor unwelcome to the Chancellor.

Mr Brown said: "The world's finance ministers have endorsed the agenda I am pursuing in Britain - long-term monetary stability through our reforms to the Bank of England, long-term fiscal stability and reform to raise the long-run growth potential."

These, he said, would be the key themes of his first Budget. He also hailed what he said was the G7's recognition that better education and training and welfare state reform were needed to ensure the benefits of growth reached the many and not the few.

The prospect of rising interest rates in the UK took the pound above DM2.85 to its highest since July 1992 at the end of last week.

This weekend's statement from the finance ministers, meeting as the Seven, without Russia, was generally optimistic. But US triumphalism about its extraordinarily healthy economy did not play well with the other delegations.

President Bill Clinton displayed it well in a weekend radio address: "Our economy is the healthiest in a generation and the strongest in the world, with the lowest unemployment in 24 years, the lowest inflation in 30 years, the biggest decline in inequality among our working families since the 1960s, and over 12 million new jobs."

British sources said Tony Blair had a great deal of admiration for President Clinton's record on job creation, and that the UK and US shared a common economic agenda.

However, officials from other countries indicated they were looking forward to a more constructive and detailed discussion about Europe's employment problems at the two summits to be hosted by the UK next year. A G7 jobs summit will take place in February, and the annual summit will be held in Birmingham in June.

The Prime Minister laid the ground for this yesterday, launching a discussion on how the world's richest countries should cope with the globalisation of the world economy. Britain intends to focus on specific proposals for improving employability and fostering job-creation.

The ministers meeting in Denver at the weekend said prospects for the world economy were very favourable, although most of the big economies needed further reductions in government budget deficits. Continuing non- inflationary growth was in prospect, with the German and French economies likely to improve.

The statement warned of the need for further deregulation of the Japanese economy, especially as the Japanese government has no other policy options open to it. Deregulation was the theme of the new trade accord between the US and Japan announced on the eve of the summit, with America playing an advisory role in the reform of four key sectors of the Japanese economy.

For the first time the finance ministers commented on the European single currency, saying it was important that it was underpinned by sound macroeconomic and structural policies. However, it disappointed the EU Commission, which had hoped for G7 backing for the single currency.

A separate report from the finance ministers reviewed the progress made on improving international financial supervision since the Mexican crisis exploded two-and-a-half years ago. New arrangements for funding future international rescue packages were finalised last autumn. The G7 wants further progress on co-operation between different national regulators.

President Clinton said: "Our finance ministers have agreed that we should create a global network of banking and marketing officials to monitor financial policies and police risky practices."

ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Accounts Payable

£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

Technical BA - Banking - Bristol - £400pd

£400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...

Account Management Strategy Manager

£38000 - £42000 per annum + competitive: Real Staffing: Required skills:Previo...

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice