Inflation 'obsession' dismissed

KENNETH Clarke, the Chancellor of the Exchequer, yesterday dismissed the financial markets' obsession with inflation by insisting there was no concrete evidence that price increases were accelerating.

Mr Clarke said the markets had over-reacted to inflation fears in the past few weeks. He also attempted to overcome fears that the impending tax increases would cause growth to falter.

The economy, he said, would expand by 2.5 per cent in 1994. 'I think we are going to achieve economic recovery and political recovery under the Prime Minister's leadership,' Mr Clarke said.

'I think as it becomes ever more clear that we have created the most favourable economic conditions in Europe with more prosperity and more jobs, that will reap political rewards.'

Shares were little changed after Wednesday's roller-coaster ride, prompted partly by earlier sharp falls on Wall Street on rising US inflation fears. The FT-SE 100 Index finished at 3,086.4, down 6 points.

Sterling had a mixed day. Against the dollar, it closed half-a-cent better at dollars 1.4845 but weakened more than half-a-pfennig against the mark to DM2.4776.

Volatile trading on Wall Street suggested that next week's markets could open on a bearish note.

After plunging 72 points on Wednesday, the Dow Jones Industrial Average see-sawed yesterday from a tumble of more than 62 points to close up 9.21 at 3,635.96.

Wall Street is gripped by fears of rising US inflation fuelled by a climb in long-term interest rates, which recently broke through the key 7 per cent level.

Some US analysts are predicting significant additional declines.