Leading Article: Mr Prudent opts for pain today

FOR NOW, at least, the Chancellor has placed economic prudence above the temptation to seek short-term popularity. Yesterday's half-point rise in interest rates, combined with a pledge not to cut taxes in November, is a sensible, pre-emptive response to signs of inflationary pressures.

But neither policy offers much succour to Tory backbenchers fearful for their majorities, or to those large sections of the public that have yet to feel the tangible benefits of economic revival.

This year's Tory party conference agenda, published yesterday, highlights the discontent felt by many grassroots activists. Motion after motion gives vent to their anger at increased taxes. Conservative ministers may appease loyalists with crude rhetoric on social issues, but yesterday's announcement makes clear that Kenneth Clarke is not, or at least not yet, prepared to loosen economic restraints for the sake of creating a feel-good factor.

In choosing caution, Mr Clarke has given most weight to Britain's higher than expected 3.7 per cent growth rate, which may itself prove to be an underestimate. This suggests a pace of recovery unlikely to be threatened by a small rise in interest rates, which has been long anticipated even if its timing came as a surprise.

Paradoxically, Mr Clarke has demonstrated firm leadership at a time when he has surrendered a degree of control over monetary policy. His room for manoeuvre is less than that enjoyed by his predecessors, now that the minutes of meetings between himself and Eddie George, Governor of the Bank of England, are published regularly. The markets would soon make their disapproval felt if it was discovered that Mr Clarke had ridden roughshod over the Bank's advice.

Politically, Mr Clarke's chosen course also makes sense, whatever its short-term unpopularity. Last year's tax rises were right because he needed to cut the public sector borrowing requirement. Yesterday's interest rate rise should help to extend an economic recovery that might otherwise be overheating in the run-up to the general election. The Chancellor has inflicted pain early, in the hope that it will be minimised in the longer run and forgotten by polling day.

It is unlikely, however, that a Chancellor as political as Mr Clarke will want to cast himself indefinitely as Mr Proudly Prudent. His eye must already be fixed upon the Budget of November 1995, when presumably he will want to cut direct taxes and restart an election campaign bandwagon that will paint Labour as the party of high taxation.

It is not inconceivable that, by this point in the cycle, a reduction in the overall fiscal burden may be feasible; the judgement ought to depend upon the prevailing performance on inflation, the budget deficit and, who knows, perhaps even some re-emerging concern about the relationship between sterling and other European currencies. The problem is that prudent Chancellors don't always win elections.