Brown backing for rise in rates

GORDON Brown today gave implicit backing to a widely expected increase in interest rates from the Bank of England next week.

In a speech to business leaders, the Chancellor said economic stability was 'the first and most fundamental duty' of Government.

'I can assure you that we will put stability first, now and in the future, and that we will never make the mistakes of the late-Eighties and early-Nineties when monetary disciplines lapsed and were forgotten,' Brown told the annual convention of the Institute of Directors at the Royal Albert Hall.

In a jibe at Tory administrations, he said: 'At this time in the economic and political cycle, past Governments have allowed either inflation to get out of control, spending to get out of control, or both, as happened most recently in the early 1990s with 10% inflation, 15% interest rates, an 8% deficit and a doubling of the national debt.'

The Ernst & Young ITEM Club warned this week that, with growth expected to reach 3.25% over the next two years, a potentially destabilising pre-election spending boom could result unless borrowing was made more expensive.

Brown's comments came as Marian Bell, a leading dove on the Bank's monetary policy committee (MPC), stoked expectations that rates will be lifted by a quarter-point to 4.25% on Thursday next week.

Bell said the amount of spare capacity in the economy was shrinking and inflation was rising. But she rejected the idea that the MPC should raise rates to calm the housing market.