Trade gap won't hinder recovery, Portillo says

MICHAEL PORTILLO, Chief Secretary to the Treasury, said last night that the trade deficit was unlikely to act as an early constraint on recovery but could become an important indicator of inflationary pressure or structural rigidities in the economy, writes Robert Chote.

He told the Lombard Association that the Government had gone a long way to easing the trade deficit by getting public sector borrowing under control. But he did not go as far as Nigel Lawson, the former Chancellor, in arguing that the trade gap was simply a reflection of private sector decision- making and nothing for the Government to worry about.

Figures from the Treasury and the Central Statistical Office showed that the Government borrowed pounds 4.3bn last month to cover the shortfall between its spending and income from taxes, pounds 400m less than in the same month last year. The recovery is helping to narrow the deficit by reviving tax revenues and cutting the amount spent on social security benefits.

April's public sector borrowing requirement was smaller than the City had expected but had little influence on the markets as it was only the first month of the financial year. Last year's PSBR was revised down slightly to pounds 45.8bn.

Stephen Dorrell, Financial Secretary to the Treasury, told the Confederation of British Industry's council yesterday that the pressure to pay high and constant dividends might be damaging companies' investment prospects. He rejected the idea of direct government controls but left open the door to changes in tax treatment.