German move sparks calls for UK rate cut

BUSINESS leaders and politicians last night joined forces in calling for a cut in British interest rates following Germany's decision to reduce its lending rates.

Although the consensus in the City was that the Chancellor, Norman Lamont, would not have any room for manoeuvre, industrialists and the Labour Party said a reduction in base rates was essential to stimulate Britain's battered economy and speed recovery.

Gordon Brown, the shadow chancellor, led the demands, saying: 'The Chancellor should announce now that he is prepared to cut interest rates in Britain and accompany this with the urgently required employment, investment and industry measures Labour has advocated to ensure the economy moves forward.'

Howard Davies, director general of the Confederation of British Industry, said: 'The CBI has been calling for some time for concerted action to reduce European interest rates, but without a sterling devaluation.

'The Bundesbank's agreement to cut interest rates is very welcome. With the economy in recession and evidence of rapidly falling inflation, we believe there is a good case for lower UK interest rates on purely domestic grounds. So we hope the cuts in German rates will be followed by cuts in the UK at an early stage'.

Dr Ann Robinson, head of the policy unit at the Institute of Directors, said: 'This is the news British business has been waiting for. If Germany starts cutting interest rates to give its economy a boost, we will expect the Chancellor to start cutting ours.

'How quickly he can follow up will depend upon the scale of the German cut and how the market reacts. But this is a move in the right direction and it could mark the beginning of economic recovery.'

John Edmonds, general secretary of the GMB general workers' union, said the Government had lost a chance to devalue sterling.

'This is an opportunity lost for British jobs,' he said. 'The Government have been party to helping the lira within the ERM, but seem incapable of helping our own currency. They should have tackled the two together.'

Alan Beith MP, Liberal Democrat treasury spokesman, said: 'There are now so many people in the Tory and Labour parties urging the Chancellor to follow Italy down the devaluation path that it is even more urgent to show that Britain has no intention of devaluing.

Lord Inchyra, speaking on behalf of the British Bankers' Association, said: 'We welcome the reduction in interest rates and believe that this will be a healthy imnpetus to the British economy.'

Last night there were strong indications that both France and the Netherlands would follow Germany's lead in cutting interest rates. But Britain's leeway to do likewise may depend on the size of the German reduction. The Germans declined to give any indication of the extent of their cut although the Italian government said that the German cut would be 'significant and general'.

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