Clarke rejects `Pot Noodle' model of economic growth

The Chancellor of the Exchequer used his annual Mansion House speech in the City of London last night to deny that he was trying to create a pre-election boom.

"The economy is not like a Pot Noodle - just add hot water and stir," he said. "Creating healthy sustainable growth is a painstaking process."

The economy would be in good shape when the Prime Minister decided to call the election because the Government had found the recipe for economic success, he claimed.

Mr Clarke tried to hose down backbench hopes for big tax cuts in the Budget. "To think that the electorate could be bribed by premature tax cuts is an insult to the intelligence of the British people," he said.

He also repeated his promise that he would raise interest rates if there was a real risk of missing the inflation target.

The Chancellor delivered a characteristically optimistic view of the economy, speaking of a "flexible, open, dynamic Britain".

His upbeat assessment was backed by Eddie George, Governor of the Bank of England. Mr George said he hoped that after data for last year were revised it would turn out to be the third year in which inflation had been lower than growth.

"It is a remarkable performance by our own past standards," Mr George said.

Although playing down the importance of precise forecasts of the economy, a few weeks before the Treasury is due to downgrade its forecast for growth ths year, Mr Clarke said demand would continue to strengthen during the course of the year.

Mr Clarke also stressed the need for Britain to play an active role in the European Union. He said: "Economic strength will give us the ability to be powerful and influential members of the European Union, helping to shape the political rules and the very nature of the Single Market as it develops and enlarges."

The Chancellor reaffirmed his commitment to the existing framework of economic policy. He was sticking to his targets of a basic income tax rate of 20p and the eventual abolition of inheritance and capital gains tax. The government budget would be balanced in the medium term, with public spending falling below 40 per cent of GDP.

The Government also remained committed to its 2.5 per cent target for underlying inflation. Mr Clarke said: "If I judge that there is scope for further interest rate cuts, consistent with my inflation objective, I will make further cuts.

"And I will not hesitate to put up interest rates if, as the economy strengthens, the economic data indicate that there is a real risk that I will not meet my inflation target."

Mr George defended the Bank of England against charges that it wanted to run a deflationary policy. Making interest rate decisions was not an exact science, he said, in a reference to speculation that he and Mr Clarke disagreed about the recent base rate cut.