No tax rises to fund spending, says Brown

The Chancellor said yesterday that Britain's pursuit of monetary and fiscal stability would help it withstand an economic downturn and that the country had shrugged off its reputation of being "first into recession and last out".

Talking up Britain's economic prospects in a widely trailed speech to the Social Markets Foundation Gordon Brown said Britain's finances were strong, indicating that no new tax rises would be needed to shore up the public finances.

"With our fundamentals sound, and debt low we have met our fiscal rules, are meeting our fiscal rules and will continue to meet our fiscal rules," he said.

He said Britain was demonstrating a new economic resilience. "Britain has continued to grow in every quarter over the past six years while other major economies have been in recession," he said.

Mr Brown added: "The true test of economic policy is whether it can cope with difficult as well as good times and I am confident that tested in adversity our system will demonstrate its credibility and resilience."

He singled out the work of the Office of Fair Trading saying "we must do more to open up competition" adding that this competition test "should apply to the public sector as well as the private sector".

This is likely to lead to more investigations into areas where government regulation is perceived to hamper competition. A recent example came last month with the decision to open up the market for pharmacy licences.

Meanwhile the Bank of England faced mounting pressure to cut interest rates later this week after new evidence suggested British manufacturing headed back toward recession in January as retail sales fell short of expectations.

The Chartered Institute of Purchasing and Supply's monthly report on manufacturing signaled another contraction in the sector in January as its overall index of activity fell to 48.6, its lowest level in a year.

Meanwhile, the Confederation of British Industry said retail sales picked up only modestly in January despite heavy price cuts after retailers suffered their worst pre-Christmas sales in 10 years.

The three month moving average showed that retail sales were growing, but at their slowest rate since March 1999. Orders placed with suppliers were also down for the first time in four years.

Alastair Eperon, chairman of the CBI survey panel, said: "The modest pick up since Christmas cannot hide the underlying slowdown in sales growth and the fact that many retailers slashed prices to lure customers into the shops."

Economists said the Bank's Monetary Policy Committee would probably keep interest rates steady at a 39-year low of 4 per cent this Thursday but with the stock market down nearly 10 per cent in a month, the case for another cut in borrowing costs was growing.

Stephen Radley, chief economist at the Engineering Employers' Federation, said: "The MPC should follow the Federal Reserve's decisive lead from last year and help the UK economy through its current soft spot."

But John Butler, an economist at HSBC, was more confident, saying the CBI's retail study had "tended to underestimate consumer spending for the past two years".

However, a survey yesterday by the accountants KPMG showed the number of company warnings had continued to rise. The study includes all negative announcements such as profit warnings and redundancies. Engineering showed the biggest rise, with a 30 per cent increase on the same period last year.