'Low inflation allows U-turn'

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The Independent Online
SUCCESS in curbing inflation had opened the way for John Major's plan to go for growth, Stephen Dorrell, Financial Secretary to the Treasury, said last night.

He told Channel 4 News: 'The success in bringing down inflation - one of the things the Government has regarded as being the highest priority in the past 12 to 18 months, when inflation was out of control - is what creates the opportunity for the economy to grow without running into an inflationary crunch. The spotlight has been shifted from the short- term objective of bringing inflation down to the medium-term objective of using low inflation to deliver a growing economy and rising living standards.'

The Prime Minister's office said the general depression in sales and high unemployment would damp down the inflationary pressures of last month's devaluation and pay demands, while low consumer confidence would severely reduce the risk of a repeat of the 1987-88 growth-inspired spending spree.

Explaining the economic U- turn, a No 10 source insisted Mr Major and Norman Lamont, the Chancellor, would maintain vigilance on the Treasury's new

1-4 per cent target inflation range. The present underlying rate is 4 per cent.

The Treasury said there would be no 'Keynesian' boost to public spending to promote growth. Officials emphasised that Mr Major's aim was to restore business and consumer confidence by offering reassurance that spending on important capital projects would be protected.

The CBI welcomed the decision to go for growth and jobs, but said confidence had been 'severely bruised' by the coal crisis.

Shares soared more than 40 points and gilt-edged stocks also rose yesterday. But the euphoria later waned and both shares and gilts fell back.

The Chancellor insisted that a 0.2 per cent rise in high street sales last month was evidence that 'gloom and doom in the high street is much overestimated'.

But some ministers were sceptical about the policy shift, and were waiting for interest rate cuts.

While the outline of the change had been discussed by Cabinet, and Mr Lamont briefed whips on Tuesday evening, the first MPs knew was when Mr Major disclosed it in television interviews.

Call for action, page 2

Andrew Marr, page 27

Lamont subdues markets, page 28

Commentary, page 29