Norman Lamont warned that devaluing the pound would lead to an increase in interest rates. He insisted that the pain being felt by home owners and the unemployed as a result of his anti-inflationary policies would be wasted if the Government eased off now.
High-street spending was more depressed for the time of year last month than at any point since the early 1980s, according to the latest survey of distributive trades from the Confederation of British Industry (CBI). 'Retailers, almost across the board, report that sales volumes are down on a year ago,' said Andrew Sentance, the economics director of the CBI.
Some 48 per cent reported lower sales, compared with 33 per cent reporting a rise. The net balance of 15 per cent reporting lower sales was the most depressed figure since the survey began in 1983.
This is the second consecutive month - and only the third in the past year - to show sales more subdued than 12 months earlier. The rate of decline on last year has accelerated sharply from the 3 per cent negative balance in June.
Separately the Bank of England has found that 1 million home owners - one in ten - live in houses worth less than their mortgages. People in this position are more likely to stay put than move house because of the difficulty in paying off the excess mortgage.
The Bank believes the problem is 'likely to remain an important feature of the finances of many households for some time to come'.
It is particularly acute in the Southeast. The Bank estimates that in London, the South-east and East Anglia, two-thirds of first-time buyers who have bought homes since 1988 have 'negative equity'.
This has already produced a depressing knock-on effect in the rest of the economy. Spending on many goods has been hit, particularly furniture and
The Chancellor made it clear he would resist the pressure from business, and grass-roots Tory members in the constituencies who have tabled resolutions calling for a cut in interest rates for the annual Conservative Party conference in October. 'I known controlling inflation has been painful, particularly for those without jobs and those with big mortgages. I'm determined not to squander the progress we've made. That would mean all the pain has been for nothing,' Mr Lamont wrote in the Mail on Sunday.
Ministers who share the fears of the party's grass roots said there was no sign within government that John Major and the Cabinet were ready to compromise.
One minister warned that the recession was nationalising the Government's plans for private sector investment in public sector schemes, such as urban regeneration.
'Everywhere one looks, the public sector is having to take over to keep the schemes alive, because the private sector cannot afford to invest,' the minister said.
Mr Major was accused of 'sleep walking' through recession by Gordon Brown, the shadow Chancellor. With stamp duty on house sales due to be reimposed this week, Mr Brown called for a package of measures to help home- owners. Mr Brown, at a Labour meeting in Fife, called on Mr Major to meet lenders to consider new measures to ease the depressed market.
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