Brown heads for rough ride from business as rates decision looms

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The Independent Online

Gordon Brown will face a rough reception from industry this week when he makes his first post-Budget appearance to address the British Chambers of Commerce annual conference.

Business leaders have warned that the Budget has done nothing to aid industry's competitiveness and that if the Bank of England increases interest rates this week, the blame will lie squarely with the Chancellor.

Speaking ahead of Mr Brown's appearance on Wednesday at the BCC conference, the organisation's deputy director-general, Ian Peters, said: "High interest rates continue to damage business competitiveness and despite appeals from the BCC and other business organisations, the Chancellor's recent Budget did nothing to ease the pressure and help the Bank control inflation."

Mr Peters said that the Budget had been the last best chance to take the pressure off rates but that the Chancellor had now left himself and the Bank with nowhere to turn.

"While the hope remains that rates stay on hold, the blame for any rate rise this week must lie firmly at the Chancellor's door," he added.

The Monetary Policy Committee will announce its decision on Thursday and although a majority of analysts believe that interest rates will be kept on hold, the vote is not expected to be unanimous.

The MPC held off from an increase last month, citing as one reason the fact that the Budget was "tighter than had been expected". However, a number of City economists have since claimed the Budget will lead to a loosening in the fiscal stance, prompting Gus O'Donnell, head of macro-economic policy at the Treasury, to deny he misled the committee.

Ciaran Barr, chief UK economist at Deutsche Bank, said the MPC should raise rates this week. He said: "One can understand why the MPC are reluctant to raise rates again at this stage - sterling. It will be a close call and [probably] not a unanimous vote."

Industry is disappointed that the Government has opted for substantial rises in public spending, fearing this will fuel economic growth and force the Bank to raise rates.

They had also hoped for an increase in the number and range of tax rebates and grants available to businesses.

Steve Radley, chief economist at the Engineering Employers Federation, said: "In the context of the difficulties caused by the pound, it seems amazing that the Treasury should think this was a good Budget for manufacturing.

The Confederation of British Industry said the Budget was a "mixed picture". A spokesman said: "We were disappointed in particular for manufacturers because one of the big issues is the upward pressure on interest rates,"

The Centre for Economics and Business Research predicts that sharp rises in interest rates, that would follow the extra public spending in the Budget, together with the abolition of mortgage interest relief and higher stamp duty, will slow the housing market.

House price rises, which are currently running at 16 per cent a year, will fall sharply to 2.4 per cent by 2002, meaning homeowners will see no longer see any real increase in the value of their home.

The centre said the average home would rise in price by 11.5 per cent this year, before slowing sharply to 2.8 per cent in 2001 and 2.4 per cent the following year. It said last week's figure of 16.2 per cent for the year to March from Nationwide building society was driven by a rush of buyers wanting to beat changes in the tax rules.