In separate evidence to the Treasury and Civil Service Select Committee, both also expressed the hope that recovery would get under way this year, with growth of slightly more than 1 per cent.
Their views coincided with a report by the Chartered Institute of Purchasing and Supply that suggested manufacturing industry is experiencing considerable growth, with new orders from home and abroad rising for the fifth consecutive month.
The institute's March survey revealed that new orders and output were up sharply and strong production had already depleted some raw material stocks.
Norman Lamont said consumers were likely to be extremely cautious after a long period of indebtedness and that growth might be more firmly based on an improvement in Britain's net trade position. The Chancellor said his decision not to raise taxes significantly this year followed the heavy erosion of confidence in the recession.
Mr Lamont and the Bank's Governor, Robin Leigh-Pemberton, also rejected the suggestion that Britain was pursuing a policy of competitive devaluation, in which benign neglect of the exchange rate is pursued to boost exports. Mr Lamont added that he was not operating an exchange-rate target but preferred a stronger rather than weaker pound. The two appeared to disagree over whether Britain should rejoin the European exchange rate mechanism. Mr Leigh-Pemberton, who retires in June, said it should be a primary objective of policy, but the Chancellor said there was no prospect of rejoining until Britain was firmly out of recession and there was more synchronisation between British and German monetary policies.
Mr Leigh-Pemberton meanwhile expressed doubts that a further cut in base rates would be passed on by the banks to corporate borrowers or to households. He said: 'It is much better policy, not only in terms of either fiscal and monetary policy, but also in terms of public expectations, that we should produce something as stable as possible in terms of the interest-rate structure, rather than snatching at what may be a short-term reduction'.
As a result of improved prospects this year, Mr Leigh-Pemberton said the Bank would prefer to see lower rates in Continental Europe strengthen sterling, rather than provide an opportunity to cut British base rates again. With underlying inflation between 3 and 4 per cent while the economy was still weak, 'we have to remain extremely alert to the resurgence of inflation pressures'.
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