Brown stresses need for public finance discipline

Gordon Brown yesterday said in an optimistic speech that the Government had taken the right steps to get the economy back on track for steady growth.

Giving his first assessment of the British economy since July's Budget, the Chancellor of the Exchequer, speaking in Hong Kong at the IMF's annual meeting, said: "I am now more optimistic that we are on course to get the economy back on track next year."

But he said that breaking the cycle of boom and bust he had inherited required vigilance on both interest rates and government spending. "There is no room for complacency regarding the public finances," he said. "We will maintain strict discipline in public spending and I have insisted that, across the board, public sector pay settlements must be guided by firmness and fairness."

Mr Brown said the new framework for interest rates set independently by the Bank of England and the new long-term stability for the public finances would help deliver higher growth in the long run.

"What industry fears most of all is a return to the stop-go instability of the past and the best prospect for industrial investment is to get the economy back on track to sustainable growth with low inflation."

He also emphasised the need to reform the economy by modernising the welfare state. The tone of Mr Brown's assessment was notable for its contrast with his predecessor's speech at the same event last year.

Although the IMF recently gave the British economy a glowing report, the Chancellor said yesterday: "I will not disguise the problems that we inherited, in particular the strength of consumer demand and the threat of inflation."

He added that the Government had also inherited fundamental long-term challenges in education and welfare.

Despite his cautious tone about British prospects, Mr Brown took the opportunity to remind the other European ministers present that long-term flexibility and adaptability in the workplace was necessary for the creation of jobs.

"We must tackle obstacles to dynamism," he told them, calling for a European agenda for structural reform. This will be the subject of a special employability conference in London next February.

However, he firmly denied rumours that the Government's approach to the European single currency was about to become more positive. Yesterday he merely reaffirmed the fact that it had started a debate about monetary union.

Speaking separately to the British Chamber of Commerce in Hong Kong, Eddie George, the Governor of the Bank of England, repeated his concerns about the risks of joining a single currency without genuine economic convergence.

He urged European heads of state, who must decide in May 1998 which countries can join on 1 January 1999, to refuse entry to any which had not met the requirements.