Chancellor predicts a win

If England somehow fails to win Euro 96, the success of the economy will be our consolation. So the Chancellor, Kenneth, assured a City of London audience last night in his annual Mansion House speech.

Mr Clarke - who saw England win at Wembley in 1966, when interest rates were going up and the Wilson government had introduced a prices and wages freeze - claimed to have found the recipe for economic success.

But the Chancellor, who expects to see unemployment fall below 2 million next year, shied away from predicting the return of the feelgood factor. The speech prepared the ground for a downgrade of his 3 per cent growth forecast due to be published next month. What mattered, Mr Clarke said in upbeat mood, was that demand would pick up during the year.

Gordon Brown, the shadow Chancellor, said later: "Having last month been forced to admit his borrowing forecast was wrong, Mr Clarke has now, for the first time, been forced to admit he is unlikely to get the 3 per cent growth he promised in the Budget." He added: "The fact is we have a lamentable record of investment and we are falling behind all our competitors."

However, the Governor of the Bank of England, Eddie George, who was also speaking at the Mansion House dinner, said the recent performance of the economy had been "remarkable" by past standards.

In his speech the Chancellor said he had no intention of engineering a pre-election boom. In a stern warning to backbenchers clinging to hopes of big tax cuts in the Budget he said: "We are not pursuing a 1990s version of Reaganomics - slash taxes and hang the deficit."

Taxes would be reduced when it was affordable, and it was an insult to the electorate's intelligence to think they could be bribed by premature tax cuts, Mr Clarke said - omitting to mention that the strategy appeared to have worked for President Reagan in the 1980s.

Mr Clarke said he would cut interest rates again if it did not threaten his inflation target, and he would not hesitate to put them up either if the state of the economy demanded it. "Those who say it will be politically impossible to do so are talking of lightweight, populist politics. I have nothing to gain and everything to lose from letting inflation out of its box."

His speech also took a robust pro-European line. "We need to retain a leading and influential position in the world's most powerful single market, the European Union, in order to take full advantage of our opportunities," he said.

Upbeat assessment, page 19