Ed Balls gives Whitehall's blessing to interest rate rise

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The Independent Online

The Government has backed a rise in interest rates, saying the Bank of England should take a "forward-looking approach" as the economy rebounds.

Ed Balls, Gordon Brown's chief economic adviser, said latest figures from the European Commission showed Britain was leading the recovery. "We stand ready to back the monetary policy committee in all its decisions," he told business leaders last night.

In the past policymakers had pursued short-termist monetary policy - a veiled reference to rate cuts in the run-up to the 1997 election, he said.

"We must not, and will not repeat the mistakes of the past. We are determined to put stability first," Balls said.

"Just as the MPC took early action to cut interest rates in the face of a global slowdown, so too will they continue with this forward-long approach to lock in stability as the British economy strengthens and as all policymakers respond to the challenges and opportunities of the global upturn."

The Bank's Monetary Policy Committee is expected to raise rates - the first increase since February 2000 - when it meets next week.

The Government has no power over interest rates since handing over operational independence on monetary policy to the Bank six years ago.

But Balls' remarks will be seen as a sign that a rise would not trigger a row between Threadneedle Street - the Bank's headquarters - and Whitehall.

Mr Balls told the annual dinner of the CBI's north-east region that there were "clear signs ... of a steady and strengthening recovery".

He added: "Recent figures in the UK now demonstrate that economic growth has strengthened, leaving Britain firmly on the track for stronger growth with low inflation."

In a survey of 42 City economists by Reuters, 37 predicted a quarter-point rise on 6 November. Six forecast no change.

In a similar poll a month ago, only eight economists out of 49 expected an increase before the end of this year.

Since then economic growth has been revised up sharply, retail figures show a big upturn and figures on Wednesday showed that consumers took on the largest amount of debt in one month - £10.7bn - since modern records began.

"If there were any lingering doubts about next week's MPC [decision], they will have been blow away," said Geoffrey Dicks, chief economist at Royal Bank of Scotland.