Minford urges rate cut: Monetarist warns Clarke that recovery is fragile

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The Independent Online
KENNETH CLARKE, the new Chancellor of the Exchequer, has been urged to cut interest rates by one of the 'seven wise men' appointed to provide his predecessor with economic advice that would be independent of the Treasury, writes Robert Chote.

Patrick Minford, the monetarist professor of economics at Liverpool University, warned that recovery was fragile and unlikely to be as strong as most economists expected.

He called for another cut in base rates to prevent the pound rising further, which would make British goods less attractive in international markets. His desire for a weaker pound has in part been satisfied by a fall of more than four pfennigs since Mr Lamont was ousted.

Professor Minford said in his latest quarterly economic review that the Government should not be deterred from cutting rates by the fear of resurgent inflation. 'It should relax and appreciate that as a result of the accidental ferocity of its past monetary squeeze, inflation is dead and only hangs around as a ghost to haunt our Treasury,' he said. However, the Liverpool forecast also predicted that underlying inflation - excluding mortgage interest payments - was still on course to break through the Treasury's 4 per cent target ceiling.

National output is forecast to grow by 0.8 per cent this year, around half the consensus view and below the 1.25 per cent predicted in the Budget. The Liverpool economists have none the less cut their forecast for the peak in unemployment to 3.1 million, although they concede they 'are probably still being unduly pessimistic'.

The early downturn in unemployment is explained by trade union reform, tighter rules for benefits, and workers' willingness to accept lower pay settlements.