Economy in best shape for decades, Brown says

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GORDON BROWN is to announce a brighter outlook for the British economy, saying in a speech today that the Government is delivering economic stability for the first time in a generation.

However, the Chancellor will try to dampen speculation of a public spending bonanza, emphasising that there will be no short-term "dash for growth". Following recent speculation that the Treasury has pounds 10bn more than it expected in the coffers, he will insist on the need to stick to tight spending plans.

"The same tough grip will continue," he will say in a speech in New York. "Through tough discipline we will make the most of the opportunity for sustainable growth."

Mr Brown will also express strong support for the Bank of England, under attack from industry and unions for its decision last week to raise interest rates. Two Conservative members of the Treasury Select Committee yesterday wrote to Giles Radice, its chairman, demanding a special inquiry into the Bank's decision.

"The monetary policy committee has demonstrated that it will remain resolute and pro-active in its determination to keep inflation on target," the Chancellor will say. "Far from choking off recovery, pre-emptive action is essential in order both to sustain growth and meet our inflation target."

Mr Brown's first public assessment of the state of the economy since the Budget in March concludes that the benefits of setting clear rules for monetary and fiscal policy are starting to become clear. His speech comes as figures yesterday showed unemployment falling to its lowest for 19 years and inflation at a 36-year low.

Government borrowing has been reduced by pounds 31bn over the past two years to bring it in line with the "golden rule", which states that the Government can only borrow to invest and must run a surplus on other spending over the course of the business cycle.

"We will continue to lock in that fiscal tightening by keeping the public finances under control," Mr Brown will say.

The speech indicates that growth this year will be at the top of the 1 to 1.5 per cent range published in last Budget. Many commentators then thought this over-optimistic, but outside forecasters have recently been revising up their figures.

However, Mr Brown will warn against "take-it-while-you-can short termism in wage bargaining." If pay demands are restrained, he will argue: "The opportunity exists now in Britain for a new virtuous cycle of low inflation, high investment, and high and stable levels of growth."

Mr Brown gave an upbeat account of the economy at a private strategy meeting of the Cabinet, writes Colin Brown. He was praised by Tony Blair for falling unemployment and inflation but the Prime Minister warned the Cabinet to demonstrate their commitment to modernisation in their own departments.

Unemployment falls, page 16