Gordon Brown's rate dilemma
Exporters want weaker pound
Sunday 04 May 1997
The group, which is thought to have the backing of the CBI, will try to persuade Gordon Brown, the incoming Chancellor, not to raise interest rates early in his tenure to dampen a consumer boom in the economy. Instead, the exporters want him to look at tightening fiscal policy.
The Chancellor confirmed at the weekend that he would be meeting Bank of England Governor Eddie George for the first time on Wednesday.
In recent months, a number of British companies - particularly those that export to Germany - have reported depressed results and issued profits warnings as a result of sterling's strength against the mark. The pound has gained 2.5 per cent against the mark during the election campaign and closed on Friday at DM2.80.
Chief among these companies is British Steel, which announced in March that it was accelerating its job-shedding programme to 1,000-a-year from 500-a-year. Brokers have since cut profit forecasts for the coming year to pounds 140m, and the shares have lost 15 per cent of their value.
A British Steel spokesman said that the company had no plans at the moment to lobby the Blair government on interest-rate policy but added that the company "may say something next week".
Other exporters that are suffering from sterling's strength include ICI, Vickers, SmithKline Beecham, and British Aerospace. On Friday, ICI chairman Sir Ronnie Hampel called on the new government to pay attention to this "pressing problem". He said: "The strength of sterling is posing growing problems to manufacturing industry ... This needs to be fully taken into account by the new government as it plans its policies."
City economists believe that industry is looking for Chancellor Gordon Brown to raise taxes instead of interest rates to take some heat out of both the economy and the pound.
But they add that the Chancellor will face a difficult decision. Some economists are now calling for rises in taxes rather than interest rates to restrain demand and inflation without running the risk of boosting sterling to an unsustainable level.
"I can't see how we can avoid the danger of higher inflation without tighter fiscal policy. Even if interest rates go up to 8 per cent, that may not be enough,'' said Michael Dicks, economist at Lehman Brothers.
While Labour fought an electoral campaign saying it would not raise income taxes, it could still increase revenue through indirect and corporate taxes.
"They could abolish Miras (mortgage interest relief at source), shift allowances on income taxes, freeze or cut a number of allowances,'' suggested Mr Dicks.
If Labour ignores the overvalued pound, it might eventually be forced into a politically damaging devaluation mid-term in the same way that the Wilson, Callaghan and Major governments were morally wounded in 1967, 1976 and 1992. It would be ironic if New Labour is so zealous in its pursuit of monetary rectitude that it brings the fate of its predecessors upon itself.
Other economists are more circumspect. Kit Jukes, European economist at NatWest Markets, said emerging confidence in Labour's economic policies would make the threat of large-scale interest-rate rises recede, at least for the rest of the year.
Apple agrees deal with Visa on contactless payments
- 1 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 2 Perez Hilton apologises for Jennifer Lawrence naked photo leak
- 3 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 4 Mexican woman becomes world’s 'oldest person' at 127
- 5 Jennifer Lawrence 'naked sex video' will be leaked threatens 4Chan celebrity photo hacker
iPhone 6 'hidden code' could indicate sharper screens or bigger phones
Perez Hilton apologises for Jennifer Lawrence naked photo leak
Ariana Grande nude photos leak: 'These are completely fake' say singer's representatives
A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Kate Upton nude pictures leak: Model's representatives 'looking into' authenticity of naked images
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
iJobs Money & Business
£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...
£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...
£650 per day: Harrington Starr: .NET Developer C#, Win Forms, WPF, WCF, MVVM,...