Tories prepare for more grim economic news

MINISTERS are bracing themselves for further bad economic news this week with the publication of gloomy figures on unemployment and manufacturing.

Some Whitehall officials believe that the rise in the jobless total could be higher than the 25,000 estimated by economic forecasters. The total will be increased by new school-leavers and graduates. But another factor in the increase is that last month's rise was much smaller than expected, at only 7,000.

Despite the seasonal increases, the new total is likely to fuel restiveness among Tory backbenchers on the state of the economy, particularly as unemployment will almost certainly still be rising at the time of the October party conference.

The pound could also come under fresh pressure if statistics for manufacturing output show a fall.

A report on the housing market by the bankers Morgan Grenfell this week will suggest that house prices in the South-east are unlikely to stabilise before the second half of next year, and not start to rise appreciably until 1994.

While ministers are encouraged at what they see as steady progress in reducing inflation, some forecasters believe there could be a slight rise in the July Retail Prices Index, due out on Friday. If the inflation figure does increase it will almost certainly be mainly attributable to sharp falls in mortgage rates and food prices this time last summer.

But Michael Portillo, the Chief Secretary to the Treasury, will still use the downward inflation trend as an argument for curbs on state spending in what promises to be an exceptionally tough expenditure round. Although the recession has pushed up social security payments, he will say that a faster than expected fall in inflation gives departments more leeway to cut cash plans to offset the cost.

The figures come amid Whitehall moves to appoint a strong team of senior ministers to join the Chancellor's new Cabinet committee charged with curbing public spending. The committee is also expected to include Michael Heseltine, the President of the Board of Trade, as well as Mr Portillo, Lord Wakeham, the leader of the Lords, and Tony Newton, leader of the Commons.

Further reports, Business section

Political commentary, page 22