Further global rate cut likely, hints PM

Gordon Brown has raised the prospect of fresh international action to cut interest rates and stimulate the global economy. Mr Brown used an interview to hint that falling interest rates may lead to rate cuts by the Bank of England and central banks around the world, raising the prospect of another co-ordinated cut like this month's 0.5 point reduction to calm the financial crisis.

The Prime Minister told the BBC: "Now inflation is coming down over the next few months, it gives scope to monetary authorities, including the Bank of England, round the world to make a decision about interest rates. Over the world, you will see people responding to this lower inflation."

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Yesterday Mr Brown said that food and fuel bills will come down next year, easing pressure on family finances. He added: "It means that after this set of gas and electricity bills, the falling price of oil should be reflected in gas and electricity bills in the next round.

"And it also means that we know food prices have been coming down so the impact on people's standards of living has been all from the oil price and from the food price ... I hope that the price of these items will come down as a result of the action that's been taken."

Mr Brown will today make it plain that government borrowing will rise to help stimulate Britain's economy and overcome the economic downturn, using a speech to business leaders to argue it is the "responsible course" to allow borrowing to increase.

Mr Brown will also declare that the Government will not back away from benefits system reforms, saying the downturn requires an accelerated programme to help people forced on to the dole to find work. He will contradict a group of economists who yesterday condemned government spending plans as "misguided and discredited".

Mr Brown will say: "We will and can allow borrowing to rise to help restore demand and to come to the aid of workers, businesses and homeowners.

"We have combined targeted support through the tax system, such as the temporary increase in stamp duty thresholds, the freeze in fuel duty and the £120 tax rebate for basic-rate taxpayers, with a commitment to maintain the necessary investment to enable Britain to benefit from the upturn."

He will add: "Through our actions we are supporting families and businesses now and helping them prepare for the future. That is why the responsible course is to borrow now to maintain growth and output and reduce borrowing as a proportion of GDP as the economy recovers and tax receipts rise."

Ministers are expected to ease Mr Brown's fiscal rules to allow borrowing to kick-start the economy.

Yesterday, 16 economists said Alistair Darling's plan to stimulate the economy by bringing forward capital spending on state projects could damage the private sector. Last week Mr Darling, who will outline his response to the downturn on Wednesday, said spending could be brought forward on housing and energy projects.

But in a letter to The Sunday Telegraph, the 16 economists, including Trevor Williams, chief economist at Lloyds TSB Corporate Markets and Peter Spencer, chief economist to the Ernst & Young Item Club, said: "We dissent from the attempt to use a public works programme to spend the country's way out of recession.

"It is misguided for the Government to believe it knows how much specific sectors of the economy need to shrink and which will shrink 'too rapidly' in a recession. Thus the Government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources."

William Hague, the shadow Foreign Secretary, told the BBC: "People can increasingly see as the economic situation develops that compared to when Gordon Brown became Chancellor, we have inflation three times higher, Government debt higher, £5,000 on average more in taxes for every family."

Vince Cable, the Liberal Democrats' Treasury spokesman called on ministers to act against banks which failed to support small businesses. He told Sky News: "We've handed over money to the banks and Mr Daniels and his mates at Lloyds have made damn sure they got their bonuses, but why isn't the money coming through to small businesses?"