Warning on tax cuts as steady growth continues

Economy: Fresh evidence of buoyant recovery as ministers meet, but the Bank of England pleads for vigilance on inflation

There was fresh evidence of a buoyant economic recovery yesterday, on the eve of the Chancellor's key pre-Budget meeting today with ministers and officials at Dorneywood.

The British Chambers of Commerce (BCC) called on the Chancellor to leave taxes and interest rates alone, following signs of higher demand for both manufacturing and service industries in its latest quarterly survey. "The economy continues to grow at a steady rate and the manufacturing sector is returning to levels of confidence last seen 18 months ago," said Ian Peters, deputy director general.

The annual meeting at the Chancellor's official country residence in Buckinghamshire, overlooking the autumnal splendour of Burnham Beeches, will set the broad shape of the Budget tax and spending strategy. Mr Clarke will be joined today by senior officials from the Inland Revenue and Customs and Excise as well as the Treasury.

With every indication that the spending round has been very tough, cuts of around pounds 5bn from existing spending targets are expected. These are likely to be used to finance reductions in personal taxation, despite all the signs that consumer spending is picking up sharply without any further help from the Chancellor.

The BCC survey for the third quarter of the year showed that consumer demand was driving higher sales for service sector companies, which was finally trickling down to manufacturers. Manufacturers reported a big increase in their expected employment levels, reversing the job-shedding trend. Confidence in industry returned to its 1994 peak, and in services reached the highest since 1990.

The survey also found a notable increase in investment plans in manufacturing. The rate of capacity utilisation in manufacturing has reached its highest level this decade. The BCC noted that capacity constraints were the one possible signal of inflationary danger, as there were few complaints about higher wage settlements or even skill shortages.

Both domestic and export orders were up compared to the previous quarter, suggesting that there had not yet been any adverse impact on overseas sales from the strong pound.

The latest economic evidence is likely to reinforce the Bank of England's view that there is a "significant" danger of inflation missing its target by 1998. The Bank's annual pre-Budget letter to the Chancellor this week is thought to have set out the view, expressed by the Governor Eddie George in a speech earlier this week, that fiscal policy must be as responsible as interest rate policy to keep growth and inflation on a steady course.

The size of the tax cuts announced next month will influence the Bank's view about the urgency of the need for higher base rates. Its Inflation Report, due three weeks before the Budget, will have to be based on the assumption of no change in taxes and spending.

Mr Peters of the BCC said interest rates should remain unchanged. "Further reductions could cause undue stimulus to the economy, whilst any increase could threaten the delicate balance of this recovery and hurt export markets," he said.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most