Clarke cool on rate cuts

THE CHANCELLOR of the Exchequer said yesterday that spending in the British economy was growing rapidly, and in effect ruled out any early cuts in interest rates.

Kenneth Clarke said that there was 'no need for any increase in demand in the UK' since retail sales and consumer spending were showing strong growth and he would like the recovery to have an emphasis on exports. However, he refused to join the criticism of Conservative German and French economic policies by the US Treasury assistant secretary, Larry Summers. 'I would prefer demand to pick up on the basis of a non-inflationary recovery.'

Mr Clarke said Europe should concentrate on policies to combat structural unemployment. Britain's labour market was the most flexible in the European Union, which was why unemployment was falling so early in the economic cycle.

Speaking to journalists at the Davos World Economic Forum, Mr Clarke said there should be continuing aid to Russia despite the recent resignation of leading reformers from the government, but that aid should depend on progress towards market reform.

The Chancellor also defended the IMF against critics such as the Harvard professor Jeff Sachs, who resigned last week as adviser to the Russian government and who maintains that IMF and Western policies have been short-sighted and ungenerous.

Although the situation in Russia was unsettling, Mr Clarke ruled out any reconsideration of Britain's defence cuts. With defence spending of 3 per cent of national income, Britain was reasonably secure.

On the prospects for European Monetary Union, the Chancellor said there seemed to be consensus that the time was not right for blueprints or timetables. The key was convergence towards sound economic policies and low inflation.