Clarke looks back on the bad old days

Kenneth Clarke, Chancellor of the Exchequer, yesterday used the occasion of the 20th anniversary of Denis Healey, the last Labour chancellor, turning to the International Monetary Fund for an emergency loan to claim that the British economy had broken the mould.

Mr Clarke's bid to push the economy to the top of the political agenda reflects Government hopes that the returning feel-good factor will help its re-election chances.

He said at the IMF in Washington: "This ironic anniversary is the best evidence of the scale of reform of the British economy over the last two decades."

Britain will be the fastest-growing European economy this year and next, and the IMF shares his belief that unemployment can continue to fall without increasing inflation, thanks to the structural reforms that have taken place.

The Chancellor said: "Our agenda of privatisation, deregulation and labour market reform has made the UK economy more flexible, more responsive to changes in market condition and less inflation prone."

He contrasted the current low inflation environment with the "beer and sandwiches" incomes policy of the late 1970s.

On the day that the latest survey pointed to a strong pick-up in activity in prices and manufacturing, Mr Clarke asserted that British industry was shedding its inflationary psychology, with companies less inclined to take the easy route to giving in to wage demands.

He promised to stay tough on inflation and tough on public borrowing. In its new economic forecast published last week, the IMF warned that a correction was needed in the government's borrowing requirement to get it back on the right track.