Rates held as unemployment plunges: Women benefit from creation of part-time work but National Westminster Bank cuts jobs - Pound rises against mark

THE CHANCELLOR of the Exchequer and the Governor of the Bank of England agreed yesterday not to cut interest rates for the time being as unemployment tumbled to its lowest level in 18 months.

Unemployment fell by 46,800 last month to 2,766,200, after adjusting for the 60,000 rise which is normal for December, said the Department of Employment. The unexpectedly big fall means unemployment has dropped by 226,000 since its peak last January. Fewer than one member of the workforce in 10 is now without a job and claiming benefit.

However, the figures coincided with the announcement that National Westminster Bank will shed 4,000 this year, largely through natural wastage, voluntary redundancy and early retirement. British Petroleum said 600 would go with the closure of a plant in West Glamorgan; 142 will be shed when Hatfield airfield shuts.

Unemployment fell in every region, with fewer people joining the dole queue than in any month for three years. However, factory employment continues to fall, with job creation dominated by part- time and often low-paid work for women in services such as shops and catering.

Further evidence that the labour market is improving came with figures showing more new vacancies were notified to JobCentres last month than in any month for three-and-a-half years. The number of vacancies filled was higher than in any month for more than three years.

David Hunt, Secretary of State for Employment, said the jobless figures were 'excellent news' and confirmed the downward trend was firmly established. But Ann Clwyd, Labour employment spokesman, accused the Government of keeping a million people off the register through a 'statistical illusion'.

The figures suggest the looming prospect of tax increases from April has yet to weaken the economic recovery. This appeared to convince the Chancellor and the Governor at their monthly meeting that base rates should stay at 5.5 per cent, despite there seeming to be little danger of fuelling resurgent inflation. Anthony Nelson, Economic Secretary to the Treasury, said afterwards that another rate cut was unlikely because the Government was 'content with the present monetary stance and the present level of interest rates is satisfactory in terms of continuing to bear down on inflation'.

The Treasury said house prices were one indicator used to assess pressure on inflation. The Halifax Building Society said those prices had risen by 1.2 per cent last year, following falls in 1991 and 1992. The society predicted they would rise by 5 per cent this year.

Fading hopes of an early cut in interest rates saw share prices drop sharply on the stock market, while the pound leapt higher against other currencies. The FTSE index of 100 leading London shares fell by nearly 42 points to close at 3,372.

The pound rose more than a pfennig against the beleaguered German mark to close at DM2.6042, its highest since the aftermath of its expulsion from the European exchange rate mechanism in September 1992. The pound suddenly cleared the pyschological barrier of DM2.60 a few minutes before the unemployment figures were published, fuelling accusations that the figure was leaked. The Employment Department said last night that it would investigate the claims.

The pound closed at 82.9 per cent of its 1985 value against a basket of currencies. Some advocates of a rate cut fear exporters will suffer if the pound continues to rise, but the Treasury may be favouring a 'strong pound' policy to keep inflation low by keeping import prices down.

Most City economists had given up hope of an early reduction in interest rates after bouyant high street spending before Christmas and in the new year sales. However, a cut is still expected in the spring.

Factory earnings growth slows, page 35