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
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee