View from City Road: Prudent talking . . . for the moment

Only the politically naive would have expected a surprise from yesterday's Mansion House speeches. If the Chancellor had had any rabbits to pull out of the hat he surely would not have waited until now to do so; he would have played his aces well in advance of last week's European elections.

For all that, the speeches were striking if only for the accord they seemed to establish between Kenneth Clarke and the Governor of the Bank of England. It was as if they had been carefully synchronised. In saying that the economy is now strong enough to sustain the growth rates he would like to see, the Chancellor makes it plain as a pikestaff that he has abandoned his inclination to chop base rates any farther. And having won the argument he lost last February, Mr George has gracefully conceded that a rise in rates is still some way off.

With the Bank forecasting underlying inflation of more than 3 per cent next year and the Chancellor still determined to bring it down to the lower end of the 1-4 per cent target range by the end of the Parliament, he'll have to go along with the Governor when the time comes.

If they are to be taken at their words, the two men are now firmly in the same monetary camp. Winning the trust of markets may take a little longer, however. Mr Clarke's bluff and genial exterior is ill-suited to the traditional hairshirt role of a chancellor. Privately, he admits the Government still has some way to go to win back credibility. You could argue, as Mr Clarke does, that the worst damage to credibility was done by Norman Lamont at the time of the ERM fiasco. But February's interest rate cut hardly helped, and Mr Clarke cannot blame his predecessor for that. Winning back the trust of markets will be a long haul; the Chancellor's decision to publish the minutes of his monthly monetary meetings with Mr George was an important start - something that ought to commit politicians both today and tomorrow to pursuing low inflation policies.

His Mansion House speech, in which he promised to refrain from fiscal profligacy despite the Tories' disastrous showing in the polls, added to the message. It contained a strong hint that spending will be squeezed below the pounds 263bn New Control Total for fiscal 1995. There was also a clear warning that taxes will not be cut before unsustainable borrowing is under firm control. That, of course, was the line the markets wanted to hear. But don't count on it being more than temporary. Mr Clarke may have it in him to resist tax cuts this time, but what about next year when the general election will be that much closer?