Lamont hints at public spending cuts: Interest rates could rise to keep inflation low

THE CHANCELLOR yesterday dropped a hint of new cuts in public spending in the November Budget to help to prolong the emerging economic recovery.

Norman Lamont also suggested that the next move in interest rates would be upwards if the upturn began to threaten a rise in inflation pressures. He said this year's pounds 50bn public sector borrowing requirement was the 'biggest threat' to a sustained economic expansion that had yet to be secured.

Responding to the latest IMF analysis of the UK economy, which urges a further tightening of fiscal policy starting perhaps this year, Mr Lamont said: 'We will do whatever is necessary in order to get back towards a better situation. We have got to address this problem.'

Curbing the deficit was not only a goal in its own right 'but a reduction in borrowing is also vital if the recovery is to be sustained', he told the IMF's policy-making committee.

At the very least, the Chancellor said he would hold public spending within the ceilings for the next three fiscal years. Public spending is set to rise by 0.7 per cent in real terms to pounds 253.6bn in the year starting next April.

Mr Lamont's warning on public expenditure was coupled with a confident assessment of the recovery, which he said was now taking place across a broad front. Much of it was ignited by interest rate cuts made before Britain left the European exchange rate mechanism and the full impact of cuts made since was still to be felt.

However, the Chancellor said that if the expansion placed the Government's 1-4 per cent target for underlying inflation in jeopardy interest rates could rise.

'Containment of inflation is the keystone of our policy,' he declared. 'Whatever is necessary to keep inflation down, we will make the policy adjustments to get it.'

The Chancellor said some sectors of the economy began recovering in mid-1992 and recovery was under way in manufacturing, on the high street and in the record exports to European markets.

But he expressed caution over whether unemployment had peaked, though he did say he was confident in a firm improvement in the UK labour market. 'Clearly there can be no sense of satisfaction until unemployment is brought down significantly from current high levels,' he said.

The Chancellor called again for further cuts in German rates to help the European economy, which he acknowledged was vital to Britain's export performance.

His comments coincided with a new report by the leading industrial countries which effectively freed the foreign exchange markets from blame for the European currency crisis of last September.

Instead, it placed responsibility on the divergence of economic policies in Britain and Germany, a condition Mr Lamont said remained true today.

In a report commissioned last September and issued yesterday, the so- called Group of Ten said: 'Despite the surge in volume and the one-way nature of much of the trading, foreign exchange markets generally functioned well throughout the summer and autumn of 1992.'

The report in effect acknowledges that Britain and Italy were maintaining exchange rates that were incompatible with the state of their economies when sterling and the lira were forced out of the ERM.

It also implied that Britain's unwillingness to raise rates last summer helped to foment the currency crisis.

A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
ebookA unique anthology of reporting and analysis of a crucial period of history
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Latest stories from i100
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

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star