Treasury stands by exchange rate discipline

A TREASURY minister delivered a blunt warning yesterday that Britain would not compromise its monetary policy, amid continued City speculation that a further cut in interest rates could be on the way.

Stephen Dorrell, Financial Secretary to the Treasury, mounted a tough defence of Britain's membership of the European exchange rate mechanism in terms which will be taken as a warning to backbenchers tempted to blame ERM for the delayed economic recovery.

Mr Dorrell gave no hint on short-term base rates. But in a wide-ranging speech defining post-Thatcherite economic policy he warned that the Government would resist 'the clarion call of the easy cop-out'.

He added: 'We are determined to match our standards of monetary discipline to the best in Europe, because if we don't we shall continue indefinitely to impose a needless handicap on the process of wealth creation.'

Mr Dorrell, who is on the left of the Conservative party, in effect turned the tables on right- wing critics of the Government's economic policy by making clear that the defeat of inflation was the highest priority and that ERM was the best method of monetary discipline.

He said: 'More words have been spoken about the need to maintain the value of money than about any other subject in economics. And yet only since we joined the ERM have we had the courage to commit ourselves irrevocably to turning fine words into real deeds.'

Mr Dorrell's speech - intended to define overall strategy rather than short-term policy - came amid City speculation that the Bank of England is clearing the way for a further cut in base rates timed to coincide with this week's World Economics Summit.

Despite strenuous denials by senior Whitehall officials that any such preparations were underway, there is a growing conviction in the City that the authorities will act, if they can do so without endangering the pound's stability inside ERM.

Leaders of the Group of Seven rich industrial states, who begin a three-day meeting in Munich tomorrow, are increasingly worried that the fragile economic recovery may fail to hold. In Britain, Treasury officials openly acknowledge there are few, if any, signs of an upturn.

The leaders are expected to make clear that it is only a matter of time before further reductions in European interest rates - including those in Britain - can be made. But officials emphasise that no immediate action can be expected at the summit.

At 10 per cent, Britain's base rates are only a quarter point above Germany's key Lombard rate - the ERM benchmark below which other EC rates can rarely fall without risking weaker currencies.

But the City believes the Bank is exploring whether the markets will tolerate a small cut in UK rates ahead of a fall in German rates later this year.

The Prime Minister re-affirmed his hope yesterday that the multi- billion-pound European Fighter Aircraft project would go ahead, and repeated that Britain had still not received official notification from the German government that it intended to pull out.

Mr Major said: 'We believe it is certainly possible to reduce costs of the European Fighter Aircraft and we equally take the view that the alternatives to EFA are likely to be more expensive, not less expensive, and will take longer to produce.

'We still see EFA as an important project. We must wait and discuss the matter further with our partners, but we hope it will be possible to continue with it.'

At crucial talks tomorrow with Volker Ruhe, the German Defence Minister, Malcolm Rifkind, the Secretary of State for Defence, will seek to clarify Germany's exact position. He will also press Mr Ruhe on whether Germany is considering opting for the French Rafale aircraft instead of going ahead with EFA.

Mr Ruhe is expected to meet members of the Tory backbench defence committee later.

Life and Style
“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
beauty
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
transfers
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Sport
German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
film
News
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Sport
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
tv
Sport
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
News
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
people
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
tech
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
tech
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

JavaScript Developer (Angular, Web Forms, HTML5, Ext JS,CSS3)

£40000 - £45000 per annum + Benefits + Bonus: Harrington Starr: JavaScript Dev...

BC2

£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

SAP Data Migration Consultant

competitive: Progressive Recruitment: My client, a FTSE 100 organisation are u...

Programme Support, Coms, Bristol, £300-350p/d

£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice