Clarke pledges growth for year after year

DONALD MACINTYRE

Political Editor

Kenneth Clarke, the Chancellor, yesterday brushed aside doubts over his forecast of 3 per cent growth this year and pledged a rise in living standards "year after year after year".

Standing by his Budget prediction, the Chancellor gave his bullish outline of rapidly improving economic prospects on the eve of a political Cabinet meeting partly intended to translate economic success into a vote winner.

Mr Clarke told the British American Chamber of Commerce: "I believe that the pundits who are being more pessimistic will be proved wrong." The Commons Treasury Select Committee and the Organisation of Economic Co- operation and Development are among outside bodies which have questioned Mr Clarke's forecast.

The Chancellor said that he expected investment to pick up - thanks to the fall in inflation and steadily improving company balance sheets - and added that conditions for firms "have rarely been better".

And he told his business audience that he expected a significant increase in consumer spending, fuelled by tax cuts, pay increases, payments from building society takeovers, maturing Tessas (tax-exempt savings), a strengthening housing market and rebates to customers from the sell-off of the National Grid.

Mr Clarke said: "The conditions for firms to invest have rarely been better. Inflation is low, providing the stability businesses need when making long-term decisions. Company balance sheets are in very good shape, with profits rising by around 6 per cent over the past year. And thanks to inflationary pressures staying low, I was able to reduce interest rates again last week."

He added: "Although it played an important role in the early stages of this recovery, consumer spending has not been the main source of growth over the past two years.

"This is rare for the British economy. It gives rise to all the chatter about the so-called feel-good factor. Increased consumer spending should be the main source of growth in the economy as a whole this year."

Mr Clarke added that he was not interested in "delivering a one-year wonder" and set himself three tasks to ensure that stronger growth lasted for the long-term benefit of UK Ltd. The Chancellor said that he intended to "do everything that I can to entrench the low inflation culture in our society".

This meant setting interest rates to achieve his inflation target of below 2.5 per cent; but he also urged companies to keep firm control over pay. And it also meant controlling public spending and pushing ahead with improving the working of the economy by, for example, privatising Railtrack and Nuclear Electric

Today's Cabinet meeting, without Whitehall officials present, will focus on the fightback against Labour. It will also concentrate on the need to disseminate what ministers believe is good news about the economy to ensure that the electorate's economic optimism is matched by an improvement in the Tories' share of the vote.