Parliament & Politics: `Tough policy made rates cut possible'

ECONOMIC POLICY

GORDON BROWN insisted yesterday that the Bank of England's decision to cut interest rates by 0.5 per cent had been possible because of the "tough long-term decisions" taken on fiscal and monetary policy by the Government.

Denying Tory claims that his "fantasy forecasts" for economic growth would lead to a "fearsome toll of job losses", the Chancellor stressed that "in an uncertain world, Britain is steering a course of stability".

He said the cut in interest rates, which he welcomed, "follows the global downturn, which the Bank of England and I agree will lead to more moderate growth next year. The cut is possible because of the tough long-term decisions we have taken; making the Bank of England independent, cutting the deficit by pounds 20bn, getting inflation back on target," he said.

Mr Brown launched his staunch defence of the Government's economic policy just after the Bank's Monetary Policy Committee announced that it was reducing the base rate by 0.5 per cent from 7.25 per cent to 6.75 per cent, which, after last month's cautious 0.25 per cent reduction, was broadly welcomed by industry and unions.

But in heated exchanges during question time, Shadow Chancellor Francis Maude challenged Mr Brown to bring his "fantasy forecasts" in line "with the majority of independent economists and start taking some serious policy steps to avoid the rising toll of job losses and business closures".

But Mr Brown said the Bank of England agreed with him there would be moderate growth next year and had taken the decision in light of the recent international economic turmoil. "It's about time you woke up to what is happening around the world when growth forecasts have been downgraded by 2.4 per cent for this year and 1.2 per cent for next year. The idea that somehow Britain is unique in this matter, when we have downgraded our forecast by 0.7 per cent, is quite ridiculous and another example of how out of touch you are," the Chancellor told Mr Maude.

Malcolm Bruce, the Liberal Democrat Treasury spokesman, said the economy would have "to go a lot further down that road" then yesterday's cut before Britain was "competitive in Europe and have an exchange rate that is sustainable". "What will you do to help the Bank of England to deliver interest rates that are much closer to the European average?," Mr Bruce added.

Mr Brown repeated that the most important thing the Government could do was to make the Bank of England independent, tackle the inflationary pressures in the economy and cut the fiscal deficit.