Clarke pegs interest rates as Major vows to fight on

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Political Editor

Kenneth Clarke, the Chancellor, yesterday confounded City expectations by gambling on a decision not to raise interest rates as John Major declared he had "no excuses" for a worst-yet election toll that will leave the Tories in control of just 13 out of the 456 councils in Britain.

The unprecedented scale of the defeat was dramatised by yesterday's final results showing the Liberal Democrats have overtaken the Tories to move into second place behind Labour as the party of local government with 5,040 councillors. The Tories have 4,982.

Mr Clarke's surprise announcement, allaying immediate fears of mortgage rises, was virtually the only respite for Tory MPs struggling to absorb the impact of an electoral wipeout that fulfilled the Government's worst expectations, robbing the Tories of a record 2,027 seats.

But with the pound falling to a record low against a range of other currencies, Mr Clarke's decision drew immediate fire from City analysts convinced it had brought him into direct conflict with the Bank of England's Governor Eddie George - and deeply sceptical about his blunt claim that it had "absolutely nothing to do" with the Tories' calamitous poll results.

As predicted, Mr Major reasserted his determination - widely acknowledged even in private by fellow ministers - to defy party rumblings about his leadership. "I have never run away from a difficulty in my life and I don't intend to do so now," he told reporters in a dignified Downing Street performance as the closing results came in.

But the Prime Minister made no effort to disguise the scale of the results or his conviction that the councillors who had lost their seats had done so through no fault of their own. His admission that it had been a "very good night" for Labour and the Liberal Democrats was reinforced by the catalogue of Tory strongholds toppled.

Labour's triumphant march through the Tory citadels saw the fall of Trafford, the Tories' last metropolitan council, and the once unthinkable capture of Hove in Sussex and the formerly ultra-safe Suffolk Tory council of St Edmundsbury, while in the Cathedral city of Salisbury - seized in a clean sweep of 20 Tory seats by the Liberal Democrats - the Conservatives were pushed into third place.

Labour took a breathtaking 44 councils, and without the widely anticipated "squeeze" on the Liberal Democrats, who gained 14 councils.

What was widely seen in Westminster and the City as no more than a postponement of a base rate increase came as a determined Mr Major made it clear the Government would not be deflected from its overall economic policy. He would, he said, "listen carefully" to all the advice which will undoubtedly pour into Downing Street. But he added: "I have to say to you straight away that I have no intention of throwing away the long-term prosperity that we are seeking to build in this country."

There was little sign of a coherent plan among backbench dissidents to try to engineer the unseating of Mr Major before the formal leadership season opens in November. But senior Tories freely acknowledged last night that MPs face difficult confrontations this weekend with unseated councillors - many party constituency chairmen - who blame the Government for their downfall.

Sir Marcus Fox, chairman of the 1922 Committee, brushed aside suggestions that a minority of backbenchers, however big, would be able to trigger a leadership crisis before the autumn. But he gave the strongest of hints that he expected a summer reshuffle.

Mr Major insisted that, in the long-term, policies would prove to be right "and I am prepared to defend the policies that I've adopted, for precisely that reason, and I will continue to do so, up to and through the election, that I believe we shall win".

A barrage of Cabinet ministers insisted, first, that the 38 per cent turnout showed many disgruntled Tory supporters had stayed away and, second, that as Michael Howard, the Home Secretary, put it last night on Channel Four News "the policies are right but the fruits of those policies are not yet visible".

Analysis, page 2

Full results, page 6

Leading article, page 14

Andrew Marr, page 15